Crude oil futures ended Friday with minimal changes, but Brent crude experienced its steepest weekly decline since the COVID-19 pandemic. This drop followed significant Republican losses in the U.S. midterm elections, which raised hopes that the Trump administration might seek a diplomatic resolution to the conflict with Iran.
Macquarie energy strategist Walt Chancellor noted that the substantial risk premium, which had built up over September and October, began to unwind. He attributed this shift to a renewed diplomatic push, less aggressive rhetoric from President Trump, and a reevaluation of the war by Republicans after the midterms.
Bloomberg reported that the U.S. and Iran are closer to a potential breakthrough in ending the war. Iran has shown willingness to discuss its nuclear program, previously a non-negotiable issue. Additionally, President Trump recently spoke with Qatar's leader about de-escalating tensions, with Qatar acting as the chief mediator.
Physical oil prices indicate easing global supply conditions. J.P. Morgan analysts stated that the global oil market is moving back into surplus as Middle Eastern exports recover and demand weakens. Global supply exceeded demand by 1.1 million barrels per day in September and widened to 1.4 million barrels per day in October. Middle Eastern oil exports rebounded to 20.7 million barrels per day in October from a low of 9.8 million barrels per day in March.
Despite these improvements, risks remain due to attacks on shipping in the Strait of Hormuz and threats from Yemen's Iran-backed Houthi militants against Saudi Arabia's Red Sea export route. A Greek ship manager reported a seafarer was killed in a November 5 explosion on an oil products tanker in the Persian Gulf, believed to be caused by a missile attack.
On Friday, front-month Nymex crude for December delivery rose 0.3% to $90.83 per barrel, while front-month Brent crude gained $0.03 to $98.32 per barrel. For the week, U.S. crude plunged 12.7%, its largest one-week percentage decline since April 17, and Brent crude sank 13.3%, its biggest weekly loss since April 24, 2020. U.S. natural gas futures gained 1.7% to $2.998 per MMBtu, its best settlement value since October 19, and rose 3.4% for the week. Energy stocks, represented by the State Street Energy Select Sector SPDR ETF, tumbled 12% this week.