Oil Rebounds After Sharp Iran War Selloff

SUBSCRIBE SEARCH ARTICLES NEWS Crude recovered as hopes for easing Iran tensions competed with persistent geopolitical risks. Image by champc via iStock

Brent crude rose, as traders parsed the outlook for the US war on Iran following a steep selloff a day earlier after Democrats took control of Congress in a landslide win.

The global benchmark settled nearly 4% higher at above $98 a barrel, after losing almost 9% on Wednesday. West Texas Intermediate edged up 2.7% The war, now in its ninth-month, has proven highly unpopular among US voters who punished President Donald Trump's Republican Party at the polls. Trump has said he has no immediate plans to launch new strikes on Iran, though added the US is still prepared for an escalation. Democrats have pledged to end the conflict.

Prices pared some gains on Thursday after the New York Times reported Iran is reviewing proposals presented by mediators about its nuclear program, suggesting recent diplomatic efforts by Qatar to prevent a resumption of full military conflict is having some success.

The prospect of easing tensions has pushed Brent down about 18% this week. Yet uncertainty persists in a market that has swung wildly since the US and Israel launched the war in February. While crude exports from the Persian Gulf have rebounded near to pre-conflict levels, shipping in the region still faces constant risk of attack and US-Iran talks are yet to move toward a resolution.

"Yesterday was a mass liquidation event across crude positioning, very much a 'shoot first, ask questions later' market following a more decisive Democratic victory in the midterms than many had anticipated," said Rebecca Babin, senior energy trader at CIBC Private Wealth Group. "Emotions are still running high."

Despite this month's decline, oil is still up by more than a third since midsummer, having jumped to a six-month high in October as Trump repeatedly threatened renewed strikes against Iran.

Physical crude prices have tumbled in recent weeks as exports from Gulf producers rebounded. Futures now appear to be closing the gap as geopolitical risks cool.

Democrats won control of both chambers of the US Congress in the midterms, giving them greater leverage over spending when the new government convenes next year. That could potentially constrain the Trump administration's Iran conflict. Trump conceded that it's "largely true" Republicans lost because of the war.

"We've seen a convergence as the physical fell hard amid sustained exports from the Middle East," said Sasha Foss, an energy analyst at Marex Group's CSC Commodities. "Now, the futures are catching up as there seems to be an increase in diplomacy and a Democrat clean sweep of Congress."

Technical factors exacerbated the selloff in futures, with discretionary traders showing little appetite to step in as buyers to support prices, said Tim Skirrow, head of derivatives at Energy Aspects Quant Analytics. Once that pressure runs its course, prices could recover more, particularly if Mideast tensions flare again, he said.

Both benchmarks were hovering around oversold territory on the nine-day relative-strength index, suggesting the selloff may have been overdone.

Meanwhile, tightness persists in refined-fuel markets. Diesel has become one of the biggest pain points stemming from the Iran war, with supplies further squeezed by Ukrainian attacks on Russian refineries.

High fuel prices this year have fanned concerns that inflationary pressures could spur higher interest rates. The Bank of England on Thursday voted to hike rates in its first tightening move since 2023, and signaled it may raise them again in the coming months unless there's progress toward resolving the conflict.

Oil Prices

• WTI for December delivery advanced 2.7% to settle at $90.52 a barrel.
• Brent for January settlement rose 3.9% to settle at $98.29 a barrel.
  

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