Oil Slips Amid Middle East Tensions as Brent Falls Below $116

Oil edged lower as military tensions between the US and Iran persisted and technical indicators pointed to short-term overheating.

Bloomberg reported on October 25 that Brent crude fell below $116 a barrel, while West Texas Intermediate traded near $102. Brent had surged more than 6% last week to its highest level in six months.

President Donald Trump said in an interview with Fox News that the time was approaching to decide whether to reach a deal with Iran or pursue a military response. Iranian Foreign Minister Abbas Araghchi pushed back, saying the US would not attempt an attack if it acted rationally.

Technical indicators also suggested crude may have become overheated in the short term. Brent's 14-day relative strength index rose above 74 on October 23. An RSI reading above 70 is generally considered overbought, raising the likelihood of a price correction.

Military conflict in the Middle East continues to support oil prices. The US has recently expanded the withdrawal of diplomatic personnel stationed across the region, and Trump suggested he could resume attacks on Iran after the midterm elections on November 3. Iran is also reportedly preparing retaliation against Israel and the United Arab Emirates.

Clashes between Yemen's Iran-backed Houthi rebels and Saudi Arabia also continued over the weekend. The Houthis said they had attacked Riyadh's King Khalid International Airport in response to Saudi airstrikes in Yemen. Against that backdrop, Brent has climbed about 90% this year.

Vivek Dhar, an analyst at Commonwealth Bank of Australia, said prices need to reflect the risk of supply disruptions from broader fighting in the Middle East and the threat of further escalation. Brent may need to rise to $150 a barrel before sharply weaker demand emerges in emerging Asian economies, he added.

Jorge Leon, head of geopolitical analysis at Rystad Energy, said the market is pricing in the risk of heightened military tensions after the US midterm elections. Even if oil supply improves, that risk could keep crude prices elevated.