Traders have been increasing their bets that the Middle East war may be resolved, deepening the decline in oil prices.
Global benchmark Brent crude futures fell nearly 6% on Monday and extended losses by close to 3% on Tuesday, reaching $89.96 per barrel and slipping below the $90 mark for the first time since August. West Texas Intermediate crude futures dropped more than 2% to $84.63 per barrel.
Alongside the drop in international oil prices, gasoline prices have also pulled back. US gasoline prices fell below $4 per gallon for the first time since July, easing some of the pressure on Federal Reserve officials grappling with high inflation, though prices remain notably elevated on a seasonal basis and other costs are still running high. According to AAA data, the national average retail price for regular gasoline dropped to $3.98 per gallon on Monday, continuing a decline that began in late September. This marks the first time since mid-July that the national average has fallen below this psychologically important threshold.
Additionally, some signs of relief have emerged in the market. US gasoline inventories, which had been below seasonal levels since late April, have begun to recover. Since the US and Israel launched military strikes against Iran in late February, the blockade of the Strait of Hormuz — a critical shipping lane — disrupted crude and refined product export flows, triggering an energy supply shock that sent US pump prices soaring. Other supply disruptions have added further pressure. Escalating Ukrainian attacks on Russian refineries have tightened global fuel market supplies. As winter approaches and driving demand declines, US gasoline prices typically fall, but current prices remain about 19% above the seasonal average.
Since the US midterm elections, hopes have risen that peace negotiations could make progress and Middle East energy supplies could be restored. Democratic lawmakers in Congress are weighing whether to use the December 11 government shutdown deadline to pressure Trump into ending the conflict, now in its ninth month. After midterm results highlighted the war's unpopularity, Trump has said the US remains "locked and loaded" while also signaling a desire to wind down the conflict gradually. Trump told reporters on Monday that military action against Iran currently appears unnecessary. "At this stage... military action does not seem very necessary. But we are locked and loaded, ready to act at a moment's notice if anything changes," Trump said. He also stated, "I think this conflict will end soon."
It remains unclear whether Trump's softened tone will translate into substantive progress toward ending the war initiated by the US and Israel. Last month, Israeli Prime Minister Netanyahu lost his parliamentary majority, further deepening political uncertainty in the country. An official familiar with the matter said negotiations will continue, and the military situation may not escalate during the talks. The person said that during a meeting with Qatar's prime minister, the US signaled that maintaining current diplomatic engagement while applying economic pressure on Iran is the best path to resolving the conflict. In months of on-and-off negotiations, Iran has insisted that the US end its maritime blockade of Iranian ports and lift sanctions. Meanwhile, the US has urged Iran to stop attacking vessels in the Strait of Hormuz and make concessions on its nuclear program.
Despite attacks on ships, oil has continued to flow out of the region. In recent months, a wave of vessel transits through the Strait of Hormuz has brought Middle East oil shipments close to pre-war levels. Saudi shipping company Bahri said Tuesday it is coordinating with the US military to arrange for some tankers to pass through the waterway. However, risks to energy infrastructure in the Middle East persist. Saudi Arabia's key east-west pipeline was reportedly attacked Monday in the Medina region, sparking a limited fire that was later extinguished.
Geopolitical risks elsewhere also remain in focus. Ukraine continues to strike Russian refineries, while Russia has similarly targeted energy and civilian infrastructure. In Abu Dhabi, US-brokered talks between Russia and Ukraine are underway. Higher-level diplomats are attending compared with previous rounds, seen as a signal that both sides are more open to substantive negotiations after months of stalemate.
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