Oil rebounds on U.S. strikes near Hormuz as futures diverge ahead of midterm elections
Key Facts
Oil prices rose and U.S. futures moved in opposite directions on Tuesday morning as the U.S. midterm elections began and Washington struck Iranian targets near the Strait of Hormuz. A U.S. official told The Associated Press the operation appeared limited, while another official said it targeted Iranians using surface-to-air missiles against U.S. forces in the strait. Brent crude rose about 2% to $106.50 a barrel, while U.S. crude gained 2% to $98.49. The rebound followed steep declines in both benchmarks in Monday’s session, as the strait links military escalation with energy supply risks. The Associated Press estimates that about one-fifth of global oil supplies passed through the strait in peacetime.
Moves were not confined to oil: the S&P 500 futures contract fell less than 0.1%, the Dow Jones contract declined 0.5%, while the Nasdaq contract rose 0.25% in early trading. U.S. indexes were mixed as investors weighed the election and military developments, after a decline in U.S. technology stocks erased their early gains on Monday. In Asia, South Korea’s Kospi fell 4% to 5,626.08 points, while SK Hynix shares dropped 5.7% and Samsung Electronics fell 4%. Reuters also noted that Asian and European markets had mostly benefited on Monday from the oil decline, but momentum faded during U.S. trading as attention shifted to the election. Monday’s roughly 8% drop in oil was Brent’s biggest since April and West Texas Intermediate’s largest since July, according to Reuters.
On the diplomatic front, The Associated Press said mediation efforts had made progress, with mediators working on a framework to halt Iranian attacks in the strait in exchange for the United States lifting its blockade of Iranian ports. Further talks are due to take place during the week, according to officials quoted by the agency. Officials said Iran had announced a two-day plan to reopen the waterway and resume nuclear talks with the United States. That puts diplomacy alongside military strikes at the center of market focus, as any change in shipping through the strait affects the flow of oil supplies. The waterway’s importance stems from the fact that about one-fifth of global supplies passed through it in peacetime, according to the agency’s estimate.
Politically, more than 57 million people had voted early by Monday, and early turnout exceeded that of four years ago in battleground states, according to The Associated Press. Reuters said the impact of the vote on the makeup of Congress was unlikely to become clear before Wednesday at the earliest, while the Senate race could take days to resolve. The delay in clarifying the results extends the period in which investors will monitor the political landscape alongside the conflict and mediation efforts. The reading reflects October’s performance, not November’s, and came a day before the election session.
Tuesday’s agenda includes the September Job Openings and Labor Turnover report, scheduled for release on November 3 at 10:00 a.m. Eastern Time, along with September factory orders at the same time. After markets close on Tuesday, investors will watch for results from AMD as part of the corporate earnings season. Later in the week, the U.S. October jobs report is due on November 6 at 08:30 a.m. Eastern Time. The Institute for Supply Management’s services sector report is scheduled for November 4, according to the institute’s calendar, and covers October data. These releases will coincide with continued monitoring of election results and mediation developments around the Strait of Hormuz.