Oil prices fell Monday as renewed diplomatic efforts to end the conflict between the U.S. and Iran eased concerns over Middle East oil supplies and fears of escalation following the U.S. midterm elections.
Brent crude for January fell 7.6% to $104.77 a barrel, while U.S. West Texas Intermediate futures for December delivery settled down 7.4% at $96.46 a barrel. Both benchmarks posted their biggest one-day percentage declines since July 27.
The sharp drop came amid hopes of a breakthrough in peace talks. Iranian President Masoud Pezeshkian said the country's supreme leader had given the government certain powers as it sought to resolve the conflict through dialogue, according to Iranian state-run news agency IRNA.
Last week, U.S. Vice President JD Vance sent a message to Mohsen Rezaei, secretary of Iran's Supreme National Security Council, in an effort to restart peace talks, The Wall Street Journal reported.
Still, the prospect of renewed fighting between Washington and Tehran remains a concern. The U.S. told several Gulf Arab countries to prepare for a possible short, intense military campaign against Iran after Tuesday's midterm elections, the Journal previously reported. President Trump hasn't made a final decision on renewed strikes.
"Throughout the U.S.-Iran conflict, headlines about diplomatic progress--or lack thereof--have fueled gyrations in the oil market," said Pavel Molchanov, an investment strategy analyst at Raymond James. "Skepticism is warranted. There been many false dawns over the past eight months."
The decline in oil prices followed a rally in October that pushed Brent to its highest level in six months, driven by continuing attacks on shipping in the Strait of Hormuz, Houthi strikes on Saudi oil targets, and concerns of U.S. escalation following the midterm elections.
"I have to think the 'escalation longs' are at peak as we are so close to the midterms in the U.S.," said Scott Shelton, an energy analyst at TP ICAP Group.
Goldman Sachs raised its oil price forecasts, citing persistent Middle East supply risks. The bank now expects Brent to average $105 a barrel in December and $88 a barrel in 2027, up from previous forecasts of $90 and $80, respectively.
Goldman estimates that a geopolitical risk premium of around $27 a barrel accounted for most of October's oil price rally, while Brent's fair value remained broadly stable in the $90s as global inventories were little changed. The bank said Brent could reach $140 a barrel next year if Gulf production remains significantly below prewar levels, but could fall into the $60s if output recovers faster than expected following a lasting U.S.-Iran agreement.
On Sunday, seven OPEC+ producers agreed to keep their oil production targets unchanged for December, maintaining September's production levels. The group, which includes Saudi Arabia and Russia, is scheduled to meet again on Nov. 29 to review output levels for January.
"This decision was the easy one," said Jorge Leon, Rystad Energy's head of geopolitical analysis. "The much more important test comes at the Nov. 29 ministerial meeting, when OPEC+ will decide its 2027 production framework."
The group needs to plan around "huge uncertainty" over the U.S.-Iran war, the pace of recovery through the Strait of Hormuz, and the size of the surplus that could emerge once disrupted barrels return, he said.
Oil producers continue to redirect exports around the Strait of Hormuz following months of disruptions. Loadings at the United Arab Emirates' Fujairah port and Omani terminals outside the strait are running 36% above prewar levels, while Red Sea shipments are 8% higher, according to Kpler.
OPEC's oil production remained more than 3 million barrels a day below prewar levels in September, despite an increase in output, according to the producer group's data, reported by the Journal. The figures highlight the constraints on regional supplies even as exporters find alternative routes to international markets.
Regional security risks also persisted over the weekend. The Saudi-led coalition said Sunday that it carried out a military operation targeting resources used by Yemen's Iran-backed Houthi militants to support their missile and drone programs. Saudi air defenses separately intercepted and destroyed a ballistic missile launched by the Houthis toward the kingdom's southern region, according to the Saudi Press Agency.
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