Oil Reverses Course in a Day as Talks Hopes Give Way to a Reported Strike
Oil prices reversed course within a day. Brent crude fell 7.6 percent on November 2 to settle at $104.77 a barrel, then rose more than 1.7 percent in early trading on November 3 to $106.61. West Texas Intermediate fell 7.4 percent to $96.46 on Monday, then rose 1.66 percent to $98.06, Reuters reported.
Monday’s drop was driven by hopes for talks. As contacts continued between Iran and Qatari mediators, President Donald Trump said Iran wanted an agreement and that a deal could happen. Iranian President Masoud Pezeshkian said Supreme Leader Mojtaba Khamenei had given the government authority to negotiate peace. Reuters reported the Qatari-mediated contacts ended after days of exchanging revised proposals with no breakthrough.
Tuesday’s rebound followed a strike report. The Wall Street Journal, citing United States officials, reported that the United States military struck Qeshm Island in the Strait of Hormuz. Some officials described the strike as defensive, aimed at keeping Iran from attacking commercial shipping in the strait. United States Central Command had not confirmed the report at the time of the coverage, Reuters said.
Signals from Iran pointed away from a deal. A senior Iranian official told Reuters on November 3 that the two sides were far from an agreement to end the war and that Iran would not accept what he called excessive demands. Iranian parliament speaker Mohammad Bagher Ghalibaf said Iran had given the United States a strong and reasonable answer and that the ball was in Washington’s court, according to state media.
Behind the moves is the war risk premium, the extra amount added to the price of oil for the risk that war interrupts supply. When hopes for talks rise, the premium shrinks; when news of escalation arrives, it returns. On Monday, hopes for talks took a large part of the premium out. On Tuesday, the strike report put some of it back.
The war began in late February and has disrupted oil and natural gas shipments through the Strait of Hormuz, the narrow waterway that carries about a fifth of global seaborne oil and liquefied natural gas. Reuters reported the war has become a leading cause of high gasoline prices weighing on voters ahead of the election.
Three things will decide what happens next: whether the Qeshm strike report is officially confirmed, whether Iran responds against shipping, and whether the Qatari-mediated contacts resume. Until one of them is confirmed, oil prices can swing sharply on a single report.
