Oil falls 2.5% as fears of strikes ease, supply risks persist
Key Facts
Oil prices fell in Monday, October 26 trading as fears of renewed military action against Iran eased, though persistent supply threats kept investors cautious. U.S. West Texas Intermediate crude fell $2.60, or 2.5%, to $100.71 a barrel at 10:37 a.m. Eastern time, while Brent crude dropped $2.03, or 1.7%, to $114.70. The move followed strong gains for both benchmarks in the previous week, driven by conflict-related supply concerns. U.S. President Donald Trump said Sunday there would be no strike on Iran “today,” easing immediate concern about an imminent escalation. The statement did not, however, dispel market expectations that strikes could occur after the November 3 midterm elections.
Monday's losses marked a retreat from Friday's settlement, when prices rose by more than $3. Brent ended the week through October 23 up 6%, while WTI gained 2.3% over the same week. Those gains show that the daily decline followed a rally fueled by concerns over supply disruptions, rather than a broad easing of risks. Against this backdrop, traders are watching whether the political calm will last long enough to ease the risk premium that has supported prices. But developments on the ground in the region kept the prospect of renewed volatility alive, analysts told Reuters. The available information did not cite verified technical support or resistance levels.
Trump said Iran would not be attacked that day, while an Associated Press report said the delay did not rule out later strikes after the November 3 midterm elections. Iran's Foreign Ministry spokesman, meanwhile, said Tehran had not closed the door to diplomacy and that messages were being conveyed to the United States through intermediaries. These diplomatic channels leave room for efforts to contain escalation, but have not ended uncertainty about what comes next. That uncertainty affects the oil market through the potential disruption of crude flows and shipping if fighting resumes. The announcement that there would be no strike that day was therefore not enough on its own to dispel supply concerns.
On the regional track, senior delegations from Saudi Arabia, Pakistan and Turkey met Iranian officials in Tehran in an effort to prevent renewed fighting. Representatives of the four countries agreed on Monday to continue talks on expanding cooperation, particularly on regional peace and security. The statement did not specify a date or venue for the next meeting, leaving the next step unannounced. Turkish President Recep Tayyip Erdogan said renewed attacks on Iran would destabilize the region and harm countries not party to the conflict. Saudi Arabia also said the delegations had sought to reduce tensions and strengthen regional security and stability, as energy markets track the impact of these moves on shipping and supply risks.
Houthi attacks on Saudi Arabia remained one of traders' main concerns, alongside risks around the Strait of Hormuz and Bab el-Mandeb. John Evans, an analyst at PVM Oil Associates, said the Houthi attacks made buyers more willing to snap up Brent if it returned to the lows recorded in the previous week. “Any retreat by Brent to last week's lows will find grateful buyers,” he said, linking the price decline to regional supply risks. The assessment means some investors may see the drop as a buying opportunity while shipping threats persist. The region continues to influence oil pricing as long as escalation and tanker traffic disruptions remain possible.
Inventory data reinforced the picture of a tight market: the International Energy Agency said cumulative observed global inventories were 509 million barrels below pre-war levels at the end of September. The agency added that the oil market balance is expected to remain in deficit through year-end. That estimate sets daily price losses against a backdrop of low inventories, keeping the market highly sensitive to any development affecting supply. The expected continuation of the deficit also adds a fundamental factor to geopolitical developments in driving crude prices. In the near term, the Federal Open Market Committee meets on October 27 and 28, the next monetary policy event markets are watching.