(Bloomberg) — Oil swung in a skittish session as traders weighed progress in diplomatic efforts to de-escalate the Iran war and reach a resolution that could support energy flows from the Middle East.
Global benchmark Brent traded near $98 a barrel, flipping between gains and losses. Prices had retreated after Bloomberg reported that the US and Iran were moving closer to a breakthrough in efforts to end the war. Tehran showed some flexibility on discussing aspects of its nuclear program that were previously off the table.
Front-month futures are down about 17% this week, putting them on course for the biggest weekly loss since April 2020. For months, stop-and-go talks have failed to produce a resolution, but the outlook is starting to shift after Democrats swept the US midterm elections. Voters punished US President Donald Trump’s Republican Party over the conflict, which has fueled a rise in energy prices and inflation, increasing expectations the White House will seek a faster end to the conflict.
Friday’s gyrations extended a volatile stretch that has seen prices swing within a $19 range since Monday.
“The US political calculus appears to have changed materially, and the market is now reassessing the incentives on both sides of the conflict,” said Emily Ashford, head of energy research at Standard Chartered. “Diplomacy certainly has a greater appeal. Although we still warn that until there is tangible progress, the market remains vulnerable to sharp reversals.”
Oil’s swings on Friday also coincided with a selloff in European equities as traders shunned risk. The dollar strengthened, adding pressure on prices.
In US stocks, financial markets interpreted the Democratic sweep of Congress as motivation to dump shares related to projected AI spending.
“The fall in tech equities has had a negative effect on oil futures, as financial actors sell their commodity exposure in order to cover positions in a general risk-off sentiment,” said Sasha Foss, an energy analyst at Marex Group’s CSC Commodities.
Brent had rallied to a six-month high in October as Trump threatened renewed strikes on Iran following the midterms. For now, he is showing restraint, and Democratic control of Congress may constrain the administration’s ability to conduct further military action.
Prices had reversed earlier on Friday after Qatar’s Emir Sheikh Tamim Bin Hamad Al-Thani discussed easing tensions in the region during a phone call with Trump, adding to further speculation of a looming deal.
Iran is studying proposals on its nuclear activities presented by chief mediator Qatar, according to the Bloomberg report. The New York Times had earlier reported that Tehran is reviewing mediator proposals on its nuclear program, suggesting Qatar’s efforts to avert renewed full-scale conflict are gaining traction.
Any concession on the issue could accelerate negotiations, which have faltered since an interim peace deal collapsed in June. Before fully reopening the Strait of Hormuz, Iran wants a US naval blockade lifted, sanctions eased and frozen assets released.
Despite ongoing attacks on vessels transiting Hormuz, a revival in crude exports from the Persian Gulf has added to the bearish mood. From the Middle East to the North Sea and West Africa, physical crude prices have slumped in recent weeks, in some cases flipping to discounts as Saudi Arabia and the United Arab Emirates restore shipments to prewar levels. Producers are even competing for market share again, with Riyadh cutting crude prices for buyers in Asia to a fresh six-year low.
Oil-product exports from the Gulf remain more constrained. Those disruptions, along with escalating Ukrainian attacks on Russian refineries, have helped to drive prices higher.
Higher energy costs have fueled inflation concerns, putting pressure on central bankers. Investors expect Federal Reserve officials to raise interest rates at their next meeting in December.
US job growth surged in October while the unemployment rate edged lower, according to Bureau of Labor Statistics data out Friday, underscoring the strength of the labor market and broader economy.
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