Oil Prices: Brent Crude Rebounds as Markets Assess Iran War Outlook After US Midterms

LONDON: Oil prices rebounded on Thursday as investors assessed the future course of the US-Israeli war with Iran following heavy Republican losses in this week’s US midterm elections.

Brent crude futures rose $1.75, or 1.85%, to $96.37 a barrel by 1145 GMT, while US West Texas Intermediate (WTI) crude gained 89 cents, or 1%, to $89.01.

Both benchmarks had fallen more than 8% in the previous session, settling at their lowest levels since August 31.

“The situation in the Middle East is still unresolved and that’s why there is some modest recovery in prices at the moment,” said Giovanni Staunovo, a commodity analyst at UBS.

The conflict with Iran, launched by US President Donald Trump alongside Israel in February, and the resulting increase in fuel prices for American consumers were among the major grievances behind Tuesday’s Republican election losses.

Markets are now assessing whether the midterm results could influence Trump’s approach to the conflict and increase the likelihood of an end to the war, said June Goh, senior oil analyst at Sparta Commodities.

However, Goh warned that further volatility was likely because the path towards a diplomatic settlement remained uncertain, while global strategic reserves had become severely depleted.

Analysts said uncertainty would persist until the new Democratic-controlled Congress takes office in January. Citi said in a research note that concerns remained over whether the White House might rely more heavily on its executive foreign policy powers after the elections, potentially escalating the conflict with Iran.

Eurasia Group lowered its estimate of the probability of renewed US strikes on Iran to 60% from 65%. It also reduced the likelihood of a diplomatic agreement to 10% from 20%, citing Iran’s firm position on its demands and the possibility that Trump would reject terms perceived as a defeat.

The group raised its estimate for a prolonged standoff to 30% from 15%.

Despite the recent decline in oil prices, Eurasia Group warned that further escalation could push Brent crude sharply higher, potentially into a range of $110 to $125 per barrel.

Meanwhile, Iran’s Islamic Revolutionary Guard Corps said on Thursday that two oil tankers and a tugboat had caught fire in separate incidents after attempting to use unauthorised routes through the Strait of Hormuz.

Crude shipments through the strategic waterway, which handles a major share of Gulf oil supplies, have recovered to levels close to those recorded before the war, according to analysts. However, transportation costs remain higher.

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The recovery in Gulf supplies has returned the global oil market to a surplus after months of disruption caused by the conflict, JPMorgan said in a research note on Wednesday.

The bank estimated that the market recorded a surplus of 1.1 million barrels per day in September, which widened to 1.4 million bpd in October. The October surplus was close to last year’s average of 1.3 million bpd.

Mukesh Sahdev, chief executive of energy consultancy XAnalysts, said commercial oil inventories in major consuming countries were near their lowest levels in 15 years. He added that Iran could emerge from the US election outcome with greater resolve.

Separately, US crude, gasoline and distillate inventories all declined last week as demand reached its highest level in a year, according to data released by the Energy Information Administration on Wednesday.