Oil Prices Sink as Iran Signals Talks

SUBSCRIBE SEARCH ARTICLES NEWS Oil prices plunged more than 7% as Washington and Tehran signaled openness to renewed peace negotiations. Image by blueringmedia via iStock

Oil slumped the most in three months after Washington and Tehran signaled openness to talks to resolve the months-long conflict roiling Middle East energy supplies.

West Texas Intermediate futures slid 7.4% to settle near $96.50 a barrel after Iran's supreme leader approved government pursuit of negotiations, state-run IRNA reported. The development compounded bearish momentum that followed reports that US President Donald Trump told Israeli Prime Minister Benjamin Netanyahu he wanted to let talks with Iran play out.

The massive drop reverberated across energy markets, with benchmark European gas futures at one point falling almost 11% while US heating oil posted its steepest drop in six months. The squeeze on Persian Gulf supplies, along with escalating Ukrainian attacks on Russian refineries, have pushed fuel prices higher in recent months.

"A lot of risk premium is seeping out of both crude oil and European natural gas," said Darrell Fletcher, managing director for commodities at Bannockburn Capital Markets. "Ironically, it's also a day before midterms."

The headlines sent the US benchmark below the key $100 psychological threshold as American voters prepare to cast ballots on Tuesday. Political pressure on Trump to end the war has intensified but any relief from Monday's drop will come too late to assuage motorists pinched by elevated pump prices.

Even so, Trump touted the slide in afternoon remarks, sending prices marginally lower ahead of settlement. When asked whether he would resume strikes on Iran after Tuesday vote, Trump said "no," according to a report from the media pool that accompanies him.

Market participants are wary of stop-and-go diplomatic efforts that haven't delivered peace. The adversaries have so far failed to agree on terms for fully reopening the world's most important energy chokepoint, leaving the conflict stuck in a holding pattern.

Technical factors also amplified oil's selloff. Trend-following commodity trading advisers slashed long positions to 91% in Brent from 100% at the start of the session, according to data from Kpler's Bridgeton Research Group. The robot traders are known for a tendency to exacerbate price swings.

Oil rallied in October, hitting a six-month high despite a revival of crude flows through the Strait of Hormuz. Trump has repeatedly threatened to resume strikes on Iran after the midterm vote, although his administration signals that diplomacy remains the preferred course.

The risk of being struck in the waterway has haunted the shipping industry, even as Persian Gulf producers have managed to push more barrels through at rates that have sometimes rivaled pre-war levels.

Beyond the Middle East, Kazakhstan temporarily halted crude flows toward Russia via the Atyrau-Samara pipeline after a drone strike. The link is one of the main routes for Kazakh oil exports, shipping roughly 7.5 million tons, equivalent to just over 200,000 barrels a day, in the first nine months of this year.

Oil Prices

• West Texas Intermediate for December delivery fell 7.4% to settle at $96.46 a barrel in New York.
• Brent for January settlement dropped 7.6% to close at $104.77.
  

What do you think? We’d love to hear from you, join the conversation on the Rigzone Energy Network.

The Rigzone Energy Network is a new social experience created for you and all energy professionals to Speak Up about our industry, share knowledge, connect with peers and industry insiders and engage in a professional community that will empower your career in energy.