Oil falls more than 7% on hopes of ending war and stabilizing supply

Key Facts

Oil prices fell more than 7% on November 2, as talks between Iranian and Qatari officials bolstered hopes of ending the U.S.-Israeli war on Iran and stabilizing crude supplies from the Middle East, according to Reuters. Brent futures lost $8.47, or 7.47%, to $104.96 a barrel by 1724 GMT. West Texas Intermediate fell $7.50, or 7.2%, to $96.62 a barrel at the same time. The decline came amid diplomatic efforts, though no agreement to end the war had been announced. The move in crude is significant for UK markets ahead of the Bank of England’s decision, as the bank has said energy price volatility driven by the Middle East conflict could affect the inflation outlook.

Iran’s president said the supreme leader had granted the government “certain powers” over peace talks, Reuters reported. The agency added that Iranian negotiators had held days of talks with Qatari mediators aimed at ending the war. A draft proposal was circulating, with a follow-up meeting possible, according to an official familiar with the talks. A Raymond James analyst attributed the oil decline to signs of progress in U.S.-Iranian talks, but said skepticism was warranted after “false signs of hope” in recent months. A UBS analyst said fears of imminent escalation had pushed prices higher in the previous week, before they fell sharply at the start of the week as diplomatic talks continued.

The decline followed Brent’s close at a six-month high in October, amid fears of an escalation in the Middle East conflict after the U.S. midterm elections scheduled for Tuesday, according to Reuters. Supply risks remained despite the drop; the agency reported a recent increase in attacks on oil tankers passing through the Strait of Hormuz. At the same time, ship-tracking data indicated higher shipments from some major exporters. Two of three ship-tracking companies said Saudi crude exports rose in October compared with September, despite attacks by Iran-aligned Houthi militants on Saudi energy infrastructure. Sultan Al Jaber, chief executive of ADNOC, said global oil inventories had been depleted by about 1 billion barrels since the war disrupted shipping through the Strait of Hormuz.

The oil move comes against a backdrop of inflationary pressures monitored by UK companies and the Bank of England. The October Decision Maker Panel survey showed that companies’ one-year consumer price inflation expectations rose to 3.3%, from 3.1% in the three months to September. By contrast, expectations for wage growth over the coming year remained at 3.4% in the three months to October. Companies expected their prices to rise 3.8% over the coming year, up 0.1 percentage point from the three months to September. The Bank of England said companies expect producer price inflation to remain unchanged over the coming year, while raising prices and cutting profit margins remained the most common ways of adjusting to the energy shock; 68% of companies expected to raise prices, and 71% expected their margins to fall in October.

The Bank of England said energy prices remained volatile because of the conflict in the Middle East and had risen recently, warning that a sustained increase would raise the risk of inflation becoming entrenched. The current Bank Rate is 3.75%, the level held at the bank’s latest announced decision. The next decision is due on November 5, 2026. The bank’s schedule lists publication of the Monetary Policy Committee announcement and minutes, along with the Monetary Policy Report, on the same day. The next Decision Maker Panel survey data are scheduled for release on December 4, 2026.

On the supply outlook, Goldman Sachs raised its oil price forecasts on Sunday, citing risks of a shortage. The bank said Brent could reach $140 a barrel in 2027 if Gulf production remained 3.5 million barrels per day below the 2025 average. The estimate sets a scenario of continued production declines against the price slump at the start of the week. At the same time, it reflects persistent supply concerns despite hopes of a settlement. The next UK milestone is the Bank of England meeting scheduled for November 5, while company inflation indicators continue to be released in December.