Oil prices fell as traders assessed new diplomatic efforts in the Middle East to avert a possible resumption of US military strikes on Iran.
Brent crude fell towards $114 a barrel after rising more than 1% in the previous session, while West Texas Intermediate crude traded near $102 a barrel.
Iranian Foreign Minister Abbas Araqchi said Tehran continues to give diplomacy a chance, while the Wall Street Journal reported that US Vice President J.D. Vance contacted Mohsen Rezaei, the head of the country's top security body.
President Donald Trump acknowledged that Vance had sent a message to Iranian authorities, but said the move focused on offering medical supplies. The US president also told Axios on Wednesday that negotiations were underway through intermediaries, but stressed he did not know if they would yield results.
Rebecca Babin, senior energy trader at CIBC Private Wealth Group, believes headlines like these can move prices. She added: “Any indication of communication between senior officials on both sides could be enough to prompt some to take profits and reduce a portion of their risk premium.”
Oil prices make it harder to combat inflation.
Brent crude, the global benchmark, has risen 11% this month, reaching its highest level since April, as the conflict continues. This surge has put pressure on consumers and posed a challenge for central bankers seeking to contain inflation. While the Federal Reserve opted to keep interest rates unchanged this week, traders expect officials to resume tightening monetary policy in December.
American voters will head to the polls on November 3 for the midterm elections, amid signs of a potential decline in support for Republicans. President Trump has repeatedly indicated that he may resume military action against Tehran after the elections, possibly in coordination with Israel.
US officials have informed several Middle Eastern countries and regional allies that they should prepare for the possibility of renewed military action after the midterm elections, according to unnamed diplomats cited by the Associated Press. This follows a similar report published earlier this week by The Wall Street Journal, which suggested the possibility of a short, intense military campaign against Tehran.
The possibility of escalation exists.
The overall trajectory still points to an escalation in the near term despite recent diplomatic activity, according to RBC Capital Markets LLC. Analysts, including Helima Croft, wrote in a note that the key question is whether any new military action will be a final blow before Washington seeks to withdraw, or a broader operation aimed at pushing for regime change.
Karen Young, a senior fellow at Columbia University’s Center on Global Energy Policy, said: “I think we’re going to see a U.S.-Israeli attack on Iran, a declaration of victory, and an agreement that benefits Iran.” She added that Vice President Vance’s continued engagement is simply aimed at maintaining his position in preparation for a future political contest, or that Trump just wants an exit strategy.
In Israel, Prime Minister Benjamin Netanyahu narrowly edged out opposition leader Gadi Eisenkot after a closely contested election, though neither has a clear path to forming a government. It will be several days before President Isaac Herzog chooses who will have the opportunity to form a new governing coalition.
Mixed signals in the physical markets
There are mixed signals coming from the physical markets. Despite attacks on energy infrastructure and tankers transiting the Strait of Hormuz, Saudi exports are maintaining levels close to their wartime highs, according to ship-tracking data.
Meanwhile, U.S. crude oil inventories fell by 1.9 million barrels last week to their lowest level since July, while exports reached their strongest pace since May, according to the Energy Information Administration. Among refined petroleum products, gasoline inventories in the Midwest plummeted to a record low.
On the corporate front, traders are anticipating a flood of earnings results and comments from oil giants on Thursday and Friday, including results from Shell, Total Energies, Exxon Mobil Holdings, and Chevron.
Latest price movements
Brent crude for December delivery fell 0.8% to $114.40 a barrel at 10:17 a.m. in Singapore.
West Texas Intermediate crude for December delivery fell 1.2% to $101.59 a barrel.
