Crude oil prices were poised for a significant weekly decline, with both Brent crude and WTI down 12% since Monday. The drop followed the U.S. midterm elections, which raised hopes for a quicker resolution to the Middle East conflict. At the time of writing, Brent crude was trading at $99.42 per barrel, while WTI stood at $91.242 per barrel, both recovering slightly from Thursday’s close after reports of fresh tanker attacks in the Strait of Hormuz.
Reuters reported at least five vessel incidents in the Persian Gulf since Sunday, despite a recovery in crude shipments through the Strait of Hormuz. The attacks and lingering doubts about U.S.-Iran peace prospects, even after the Democrats’ midterm victory, provided some support to oil prices. Analysts from ING noted that without further escalation, the oil market might gradually shed the risk premium accumulated in recent months, assuming oil flows from the Persian Gulf remain stable.
However, the absence of escalation is just one possible outcome. The other is escalation, which would keep oil prices elevated. KCM Trade’s chief analyst Tim Waterer warned that until safer and cheaper transit through the Gulf is ensured, oil prices will likely remain supported on dips and vulnerable to sharp moves on any escalation headlines. FXPro’s senior market analyst Alex Kuptsikevich cautioned that the Republicans’ midterm defeat does not guarantee a de-escalation of the Middle East conflict, drawing parallels to 2006 when Congress was controlled by Democrats but U.S. actions in the Middle East under President George W. Bush remained unchanged.