Oil prices fell as the United States and Iran stuck to their usual rhetoric in their ongoing conflict, while a technical indicator suggested prices had reached overbought levels.
Brent crude fell below $115 a barrel, after jumping last week to a six-month high, while West Texas Intermediate crude traded near $101.
President Donald Trump told Fox News that the time is approaching to decide whether to reach an agreement with Tehran or destroy it. In response, Iranian Foreign Minister Abbas Araqchi said the United States would not attempt an attack if rationality prevailed.
On the technical front, the 14-day relative strength index (RSI) for Brent crude, which measures the speed and magnitude of price movements, surpassed 74 on Friday. This exceeds the 70-point level, which some traders consider a potential signal of a price decline.
Oil has jumped 90% since the beginning of the year.
However, Brent crude has jumped by about 90% this year, after the war in the Middle East disrupted oil flows and prompted Houthi rebels in Yemen to engage in the conflict, targeting Saudi Arabia.
Investors are bracing for several major events that could move markets, including the Israeli elections scheduled for Tuesday, followed by the US midterm elections in early November. Between these two dates, the Federal Reserve will determine its monetary policy.
In recent days, Washington has ordered the evacuation of some diplomatic staff from across the Middle East, while President Trump has hinted that his forces may resume strikes after the US midterm elections on November 3. For its part, Iran is preparing to retaliate, including against Israel and other countries, according to Bloomberg, citing a source familiar with Iranian thinking.
Bloomberg quoted a note from Vivek Dhar, an analyst at Commonwealth Bank of Australia, saying that the escalation of fighting in the region, along with fears that escalation is imminent, means that oil markets need to price in the risk of depleting oil and refined product inventories.
He added: We believe that Brent crude futures need to rise to $150 a barrel to force emerging Asian economies to reduce demand uncontrollably, as high prices lead to a decline in demand.
Middle East oil flows are recovering
Currently, crude oil shipments from the Middle East have recovered to levels close to those recorded before the war, including shipments transiting the Strait of Hormuz, despite Iranian attacks on ships.
More than 1.5 billion barrels of crude oil have passed through the Strait of Hormuz with US assistance since the summer, according to US Central Command, which oversees Washington's military operations in the region. US forces have imposed a complete blockade on Iranian ports to choke off their shipments, while assisting vessels from other oil producers in the Persian Gulf to transit the strait.
Jorge Leon, head of geopolitical analysis at Rystad Energy AS, told Bloomberg that the market is pricing in some risk of escalation after the US midterm elections, when Washington might feel less constrained by the immediate political cost of higher oil prices. He added: “These risks could keep prices elevated even if flows improve.”
The United States and Israel launched the war with an attack in late February, with the stated goal of ending Iran's nuclear ambitions. Israeli Prime Minister Benjamin Netanyahu, who was endorsed by Trump in the election, said in a campaign video released on Saturday that Tehran is resuming its nuclear program.
Latest price movements
Brent crude futures for December delivery fell 1.8% to $114.58 a barrel by 10:30 a.m. in Singapore.
West Texas Intermediate crude for December delivery fell 2.1% to $101.14 a barrel.
