Oil prices fell for a fourth day on Thursday on expectations the losses US President Donald Trump’s Republican Party suffered in Congressional elections this week may reduce the risk of further escalation of the US-Israeli war on Iran.
Brent futures fell 80 cents, or 0.85% to $93.82 a barrel as of 0426 GMT, while US West Texas Intermediate crude futures were down $1.2, or 1.36%, to $86.92.
Both benchmarks tumbled by more than 8% in the previous session to settle at their lowest since August 31.
A weakened Trump, facing a Democratic Congress able to constrain his military options, has greater incentive to seek a deal, two sources close to Gulf government circles said on Wednesday. A full-scale assault on Iran now looks less likely, they said.
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A resolution to the conflict could restore oil flows from the Middle East impacted by the war, though analysts caution the way forward remains uncertain.
“Markets are assessing the impact of the midterm elections on Donald Trump’s next steps with the Iran war, pricing in more likelihood for the war to end,” said June Goh, senior oil analyst at Sparta Commodities.
“However, there will be more volatility ahead as the path to full diplomacy to end the war is still wrought with many unknowns while the global strategic reserves have drawn very thin.”
Crude shipments through the Strait of Hormuz — the key waterway for most Gulf oil supplies — have recovered to close to pre-war levels, according to analysts, though at a higher cost.
The resumption of Gulf supply has pushed the global oil market back into surplus after months of disruption caused by the war, JPMorgan said in a note on Wednesday.
JPMorgan estimates the market returned to a surplus of 1.1 million barrels per day in September, widening to 1.4 million bpd in October, nearly matching last year’s average of 1.3 million bpd.
However, uncertainty remains before the Democratic-controlled Congress takes office in January, analysts said.
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Citi said in a note on Thursday there were concerns that with the midterms over the White House could focus on its executive powers in foreign policy and potentially escalate conflict with Iran.
Eurasia Group lowered its estimate for the chance of renewed US strikes on Iran to 60% from 65%, but also cut the probability of a deal to 10% from 20%, as Iran has held firm on its demands and Trump was unlikely to accept terms seen as a defeat. It raised the likelihood of a continued standoff to 30% from 15%.
Despite the recent drop in oil prices, escalation is likely to produce a sharper increase into a band of $110 to $125 per barrel for Brent, Eurasia Group said in a note.
Commercial oil inventories in major consuming countries are near their lowest in 15 years and Iran could emerge from the US election outcome with greater resolve, said Mukesh Sahdev, CEO of energy consultancy XAnalysts.
US crude, gasoline and distillate inventories all fell last week as demand hit its highest in a year, the Energy Information Administration said on Wednesday.
