Oil falls as traders mull diplomatic moves

Oil dropped as traders assessed fresh diplomatic efforts in the Middle East to avert a potential restart of US military strikes on Iran.

Brent fell below $114 a barrel after rising by more than 1% in the previous session, while West Texas Intermediate was near $101 a barrel. US vice president JD Vance reached out to Mohsen Rezaei, secretary of Iran’s top security body, according to a Wall Street Journal report, while foreign minister Abbas Araghchi said Tehran continued to give diplomacy a chance.

President Donald Trump acknowledged that Vance wrote to the Iranian authorities, but said the move focused on offering medical supplies. The US president also told Axios on Wednesday that negotiations were taking place through mediators, but stressed he didn’t know whether they would bear fruit.

“Headlines like this can move prices,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Group. “Any indication of communication between senior officials on both sides may be enough to prompt some profit-taking, and take a bit of that risk premium out.”

Global benchmark Brent has still rallied 10% this month, touching the highest since April, as the conflict has dragged on. The surge has heaped pressure on consumers and challenged central bankers seeking to contain inflation. While the Federal Reserve opted to keep interest rates unchanged this week, traders expect officials to resume tightening in December.

American voters go to the polls on November 3rd for midterm elections amid signs that there’ll be a slump in support for Republicans. President Trump has given frequent signals that he may resume the military campaign against Tehran after ballots have been cast, possibly in coordination with Israel.

US officials have told several Middle East countries and regional allies to be prepared for potential renewed military action after the midterms, the Associated Press reported, citing unnamed diplomats. That follows a similar report earlier this week from the Wall Street Journal that flagged the possibility of a “short, intense” military campaign against Tehran.

“I think we will see a US-Israel attack on Iran, a declaration of victory, and a deal that is favourable to Iran,” said Karen Young, senior research scholar at the Center on Global Energy Policy at Columbia University. The outreach from vice president Vance “is simply preserving his position for a future political race, or Trump just wants an exit,” she added.

In Israel, prime minister Benjamin Netanyahu edged ahead of opposition leader Gadi Eisenkot after a tightly fought election, although neither has a clear path toward forming a government. It will be days before president Isaac Herzog chooses who gets the chance to form a new ruling coalition.

There are mixed signals from physical markets. Saudi Arabia’s exports are holding near wartime highs despite attacks on energy infrastructure and tankers transiting the Strait of Hormuz, according to ship-tracking data.

Meanwhile in the US, nationwide crude inventories fell by 1.9 million barrels last week to the lowest since July, with exports running at the strongest pace since May, according to the Energy Information Administration. Among products, stockpiles of gasoline in the Midwest hit the lowest level on record.

On the corporate front, traders are in line for a deluge of earnings and commentary from the supermajors on Thursday and Friday, including results from Shell, TotalEnergies, ExxonMobil Holdings and Chevron. - Bloomberg