Oil prices edged higher on Thursday as investors weighed the uncertain outlook for the war involving Iran and its potential impact on global crude supplies.
Brent crude futures rose by 78 cents, or 0.8 per cent, to $95.40 a barrel as of 0900 GMT, while US West Texas Intermediate (WTI) gained 11 cents, or 0.1 per cent, to $88.23.
The modest recovery followed a sharp sell-off in the previous session, when both benchmarks dropped by more than 8 per cent to their lowest closing levels since 31 August.
Giovanni Staunovo, a commodity analyst at UBS, said prices were recovering slightly because the situation in the Middle East remained unresolved. He noted that Brent was more sensitive to geopolitical developments, while WTI primarily reflected conditions in the US domestic market.
Investors are also assessing how the outcome of Tuesday’s US midterm elections could influence President Donald Trump’s approach to the conflict with Iran, which he launched alongside Israel in February.
Higher fuel prices resulting from the war were among the major concerns for American voters and contributed to the Republican Party’s heavy election losses.
June Goh, senior oil analyst at Sparta Commodities, said markets were increasingly considering the possibility that the election results could encourage Trump to seek an end to the conflict.
However, she warned that prices could remain volatile because the diplomatic process still faced significant uncertainties and global strategic oil reserves had been substantially depleted.
The political implications will become clearer as Democrats prepare to take control of Congress in January. Analysts say uncertainty over Trump’s foreign policy decisions will remain a major factor for the oil market in the meantime.
Citi said in a research note that the end of the midterm elections could give the White House greater scope to use its executive powers in foreign policy, potentially increasing the risk of further escalation with Iran.
Eurasia Group revised its forecast for renewed US strikes on Iran down to 60 per cent from 65 per cent. However, it also reduced the likelihood of a diplomatic agreement to 10 per cent from 20 per cent, citing Iran’s firm position on its demands and the difficulty Trump would face accepting terms that could be portrayed as a defeat.
The consultancy raised its estimate for a prolonged standoff between the two countries to 30 per cent from 15 per cent.
It warned that any fresh escalation could drive Brent crude sharply higher, potentially pushing prices into a range of $110 to $125 a barrel despite the recent decline.
Tensions around the Strait of Hormuz are also keeping traders cautious. Iran’s Islamic Revolutionary Guard Corps said on Thursday that two oil tankers and a tugboat had caught fire in separate incidents after attempting to use unauthorized routes through the strategic waterway.
The strait carries a substantial share of oil exports from Gulf producers. Although crude shipments through the passage have recovered to levels close to those recorded before the war, analysts say transporting the oil has become more expensive.
The return of Gulf supplies has also helped push the global oil market back into surplus after months of disruption.
JPMorgan said in a note on Wednesday that the market recorded a surplus of 1.1 million barrels per day in September, which widened to 1.4 million bpd in October. The October figure was close to last year’s average surplus of 1.3 million bpd.
Despite the improving supply outlook, commercial oil inventories in major consuming countries remain close to their lowest levels in 15 years.
Mukesh Sahdev, chief executive of energy consultancy XAnalysts, said Iran could emerge from the US election outcome with a stronger resolve, adding another layer of uncertainty to the market.
Meanwhile, US crude, petrol and distillate stockpiles all declined last week as demand reached its highest level in a year, according to data released by the Energy Information Administration on Wednesday.
The combination of recovering global supplies, low commercial inventories and unresolved geopolitical tensions continues to leave oil prices vulnerable to sharp movements.
