Oil prices extend biggest weekly decline since 2020 as Brent falls towards $97

Oil prices extended their steepest weekly decline since April 2020 on Monday, with Brent crude falling towards $97 per barrel after losing more than 16% last week, as hopes of a diplomatic resolution to the US-Iran conflict eased concerns over potential supply disruptions.

West Texas Intermediate (WTI) crude traded around $91 per barrel.

According to Bloomberg, the latest decline extends a retreat from a six-month high recorded at the end of October, as expectations of reduced tensions following a Democratic sweep of the US midterm elections raised hopes that the conflict would not escalate further.

However, mixed signals from Washington over the prospects of a peace deal have continued to create uncertainty in the oil market.

US Secretary of State Marco Rubio played down expectations of a breakthrough in negotiations with Iran, describing Tehran’s demands as unacceptable and, in some cases, “outrageous and ridiculous.”

His comments contrasted with US President Donald Trump’s more conciliatory tone after CNN reported that he considered further military strikes on Iran “highly unlikely” if negotiations made substantial progress.

The conflicting signals have left traders assessing whether diplomatic efforts can deliver a lasting resolution to a conflict that has disrupted energy exports from the Persian Gulf.

Fresh Middle East attacks threaten oil price recovery

Despite declining oil prices, security risks around the Middle East’s critical energy infrastructure and shipping routes remain elevated.

The UK Maritime Trade Operations reported that a tanker was hit by an unknown projectile over the weekend while travelling outbound through the Strait of Hormuz, one of the world’s most important oil shipping corridors.

In another incident, Yemen’s Iran-backed Houthi rebels damaged offices of Saudi Aramco, the Saudi state-owned oil giant, in Riyadh. Saudi forces subsequently retaliated by destroying two missile launchers.

The attacks have reinforced concerns that renewed hostilities could disrupt crude shipments and reverse the recent decline in oil prices.

Jorge Leon, head of geopolitical analysis at Rystad Energy AS, said the Democratic victory in the US midterm elections does not necessarily increase the likelihood of a diplomatic breakthrough.

• “More pressure for a deal doesn’t necessarily mean a deal is closer,” Leon said.

He warned that renewed escalation could quickly reverse much of last week’s decline in oil prices.

Persian Gulf exports recover despite shipping risks

Meanwhile, crude exports from the Persian Gulf have recovered to near pre-war levels despite continued attacks on vessels transiting the Strait of Hormuz.

• Production from members of the Organisation of the Petroleum Exporting Countries (OPEC) rose last month to 88% of the volume recorded by the same producers in February, according to a Bloomberg survey.
• However, Iranian oil production declined following a US naval blockade, adding another layer of uncertainty to global supply expectations.
• Vivek Dhar, a commodities analyst at Commonwealth Bank of Australia, said the removal of the blockade could trigger further declines in crude prices.

According to Dhar, Brent crude could fall to between $70 and $85 per barrel if a deal results in the lifting of the blockade.

He noted that the global benchmark continues to carry a risk premium reflecting the possibility of renewed military confrontation between Washington and Tehran.

Ukraine attacks sixth Russian refinery in a week

Elsewhere, Ukraine struck a sixth Russian oil refinery within a week, intensifying its campaign against energy infrastructure that helps finance Moscow’s war.

• The latest attack comes as diplomatic efforts to end the Russia-Ukraine conflict gather momentum.
• Russia is preparing to send a high-level delegation, including Deputy Foreign Ministers Sergei Ryabkov and Mikhail Galuzin, to US-mediated talks with Ukraine in Abu Dhabi starting Tuesday.
• The move signals a possible willingness by Moscow to engage in more substantive negotiations following months of diplomatic deadlock.

Market participants will also monitor upcoming monthly oil market reports from three major forecasting agencies.

The US Energy Information Administration is scheduled to release its report on Tuesday, followed by OPEC on Wednesday and the International Energy Agency on Friday.