Daijiworld Media Network - London
London, Nov 10: Global oil prices plunged on Monday, with Brent crude futures touching their lowest level since early September, after US President Donald Trump indicated that fresh military strikes against Iran were highly unlikely as long as negotiations to end the conflict continued.
However, attacks on commercial vessels in and around the strategically important Strait of Hormuz continued to raise concerns over the security of global oil supplies.
Brent crude futures fell $5.05, or 5.2 per cent, to $93.27 a barrel by 1427 GMT, after touching an intraday low of $93.21. US West Texas Intermediate (WTI) crude futures also declined $4.12, or 4.5 per cent, to $86.71 a barrel.
The latest decline followed a 16 per cent fall in Brent prices last week, taking the benchmark to a two-month low of $93.22. It marked the steepest weekly decline since the early stages of the Covid-19 pandemic.
Trump said on Sunday that he was highly unlikely to authorise fresh attacks on Iran as long as negotiations to end the conflict made progress. His remarks eased fears of further military escalation and reduced the geopolitical risk premium that had supported crude prices.
However, the situation remains uncertain, with both Washington and Tehran reporting attacks on shipping in or near the Strait of Hormuz, one of the world's most important energy transportation routes.
Saxo Bank analyst Ole Hansen said oil prices continued to decline on expectations of a possible US-Iran peace agreement rather than any concrete indication of diplomatic progress.
He added that Trump's latest comments, suggesting that renewed strikes against Iran were highly unlikely, had increased downward pressure on crude prices.
UBS analyst Giovanni Staunovo said weakness in the physical oil market, supported by continued relatively high flows from the Middle East, was another factor weighing on prices.
In a report on Monday, Morgan Stanley highlighted further signs of weakness in the physical market. Dated Brent, a benchmark used to price physical crude cargoes worldwide, had weakened to a discount against the nearby Brent futures contract.
The development indicates that immediate demand for physical oil is softening, despite continuing geopolitical uncertainties in the Middle East.
Trump had previously hinted at the possibility of resuming military attacks against Iran following last week's US midterm elections. However, there has been no indication of a large-scale American military operation.
Iran, meanwhile, has warned that any renewed attacks would invite retaliation against US and Israeli targets, raising concerns about a possible escalation across the region.
Tim Waterer, chief analyst at KCM Trade, described Trump's latest remarks as more measured but said the oil market was still waiting to determine whether the midterm election results had brought about a lasting change in his approach to the conflict or whether the comments represented another temporary shift in tone.
Apart from geopolitical developments, concerns about an emerging global oil surplus are also putting pressure on prices.
Some analysts believe the market is moving towards excess supply as high crude prices weigh on consumption and weaken demand. The prospect of increased availability of oil, combined with expectations of reduced tensions between Washington and Tehran, has encouraged investors to reassess the outlook for global energy markets.
JPMorgan estimated that the global oil market recorded a surplus of 1.4 million barrels per day (bpd) in October, according to a report released last week.
The combination of easing fears of military escalation, relatively strong oil flows from the Middle East and weakening physical market conditions has added to the downward pressure on crude benchmarks.
Nevertheless, continued attacks on commercial vessels near the Strait of Hormuz remain a significant risk. Any disruption to shipping through the waterway could affect global oil supplies and trigger a fresh increase in prices.
For now, traders are closely monitoring developments in US-Iran negotiations, the security situation around the Strait of Hormuz and changes in global oil demand and supply.