Oil Falls Ahead of U.S. Midterms Despite Hormuz Tensions on Hopes for Diplomatic Solution

Oil prices fell ahead of the U.S. midterm elections despite attacks on ships in the Strait of Hormuz and Iranian threats of retaliation.

Bloomberg reported on November 1 that Brent crude, the international benchmark, fell below $112 a barrel, while West Texas Intermediate traded around $102 a barrel. Brent had surged more than 2% on October 30, but surrendered part of those gains on the day.

The decline appeared to reflect the possibility of a diplomatic resolution between Washington and Tehran. U.S. Secretary of State Marco Rubio said no decision had been made on whether to carry out additional airstrikes on Iran, adding that President Donald Trump prefers to resolve the eight-month conflict through diplomacy.

Military tensions, however, remain elevated. Trump said last week that peace talks with Iran were under way, but he has also repeatedly mentioned the possibility of resuming airstrikes after the midterm elections. Iran's supreme leader, Mojtaba Khamenei, has also instructed military commanders to expand retaliation plans against possible attacks by the U.S. and Israel, according to reports.

Attacks targeting vessels in the Strait of Hormuz have also continued. The United Kingdom Maritime Trade Operations, a British maritime security monitor, said on November 1 that it had received a report of a vessel transiting the strait being hit by a projectile. An LNG carrier had been attacked on October 30. Some ships were also reported to be sailing with their location transmitters turned off to reduce the risk of being targeted.

Even amid the unrest, Brent reached a six-month high in October. Oil shipments through the Strait of Hormuz have partly recovered, but concerns that military conflict in the Middle East could disrupt crude supplies continued to support prices.

Meanwhile, OPEC and its allies in OPEC+ agreed at a weekend meeting to keep their December oil production target unchanged. The group decided not to make additional output adjustments after fully unwinding its voluntary production cuts in September. Still, tensions around the Strait of Hormuz and the Red Sea persist, and future oil-price moves are set to depend on developments in the Middle East and whether the U.S. responds militarily.