Oil Falls 6% as Iran Signals Talks and Puts Forward Plan to Reopen Hormuz
Key Facts
Oil prices fell sharply on Monday as the war-related risk premium eased after Tehran said it was ready to resume dialogue with Washington, while details of the proposals and the U.S. position remained unresolved. By 1357 GMT, Brent crude futures had fallen 6% to $106.65 a barrel, and West Texas Intermediate was down 6.1% at $97.75, according to Reuters. Earlier in the session, prices had posted smaller declines, with Brent down 3.2% at $109.75 and U.S. crude down 3.3% at $100.69 by 0407 GMT. Iranian President Masoud Pezeshkian said the supreme leader had given the government "certain authority" over peace talks, adding that Tehran would try to resolve the problem through dialogue. Pezeshkian did not provide details of the authority, as prices fell amid continued diplomatic contacts between the United States and Iran.
Reuters attributed the easing pressure on prices to Iranian-Qatari talks continuing for a third day and the absence of a major military escalation over the weekend. The report said, "Continued hopes for some form of diplomatic progress, alongside the absence of any significant military escalation over the weekend, have taken some immediate heat out of prices for now." The move reflects oil markets' sensitivity to Middle East news, with a UBS analyst saying prices fell sharply at the start of the week as diplomatic talks between Washington and Tehran continued. The impact of these developments will depend on whether the contacts lead to concrete arrangements, amid continuing political and military risks. A Reuters report noted that an escalation in rhetoric after the elections could revive market concerns.
An Iranian delegation left Qatar on Sunday after talks aimed at reaching an agreement to end the war, according to a regional official familiar with the matter quoted by the Associated Press. The official said a draft proposal had been circulated for comment and that a follow-up meeting was under discussion. That puts the talks at the stage of exchanging ideas, with no agreement announced and no confirmation that Washington has accepted the proposal. In a separate development on Monday, Iran said it had a two-day plan to reopen the Strait of Hormuz and resume nuclear talks with the United States, after the process had been expected to take seven days. Tehran tied implementation of the plan to its demands, and the Iranian spokesman did not indicate that the United States had agreed to it.
Iran's stated demands include lifting the U.S. blockade of Iranian ports, scrapping sanctions on oil sales and a ceasefire that includes Lebanon. Tehran said ships crossing the strait after its reopening would follow a route agreed by Iran and Oman and remain under Iranian supervision. These conditions add new elements to any potential understanding on shipping and nuclear talks, while the U.S. position on the proposal remains unannounced. In Washington, President Donald Trump has alternated in public remarks between expressing a pursuit of diplomacy and threatening to bomb Iran, according to the Associated Press. The agency said the region is preparing for the possibility of a return to war after Tuesday's elections, amid fears of subsequent U.S. and Israeli strikes.
In currency markets, the euro remained near its 17-month low of $1.1182 during Asian trading on Monday, Reuters reported, under pressure after Fitch cut France's outlook from stable to negative after Friday's close. The European currency later posted modest gains as oil fell, easing energy bills for the euro zone's energy-importing economies, but weak German data limited the support. Data on Monday showed German retail sales fell 2% in September from the previous month, compared with market expectations for a 0.4% rise, after growing 1.2% in August. On an annual basis, sales fell 2.3%. By contrast, the euro zone economy grew 0.4% in the third quarter from the previous quarter, exceeding analysts' expectations of 0.2%, while annual growth was 1.3%.
Two economists quoted by the Associated Press said third-quarter growth showed household and business spending had held up against the war, but the pass-through of higher oil prices to wages and prices could support an interest rate increase by the European Central Bank. These effects are known as second-round effects, as higher energy costs can spread to prices and wages across the economy. Conversely, falling oil provides some relief for the euro zone's energy-importing economies at a time when indicators of German consumption are weak. The euro's movement thus reflects two opposing forces: lower energy costs on one hand and weaker-than-expected retail data on the other. The currency remained near lows recorded over the past 17 months in Asian trading, according to Reuters.
Attention is turning to the U.S. midterm elections scheduled for Tuesday, November 3, amid warnings that tensions could escalate afterward. China also plans to send a special envoy to Iran, Oman and Saudi Arabia in early to mid-November, according to a Chinese Foreign Ministry spokeswoman quoted by the Associated Press. On the data front, the U.S. Energy Information Administration listed its weekly petroleum status report for the week ended November 6 for Thursday, November 12 at 12 p.m. Eastern time, with the date adjusted because of the Veterans Day holiday. The U.S. October jobs report was scheduled for Friday, November 6 at 8:30 a.m. Eastern time. The outcome of political contacts and upcoming data releases remain in focus for energy and currency markets in the coming days.