Oil prices slide as the Iran war premium fades and OPEC+ holds steady
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Oil prices fell sharply in the first week of November as traders looked beyond OPEC+ supply policy and toward the prospect of an end to the Iran war.
Brent crude fell 8.47% to $94.83 a barrel on the evening of Wednesday, Nov. 4, its lowest level in nearly 2 months. West Texas Intermediate dropped 7.5% to $88.88. By that point, both benchmarks were down more than 15% for the week.
The decline came only days after OPEC+ chose to leave its own output plans unchanged. At a virtual meeting on Nov. 1, 7 member countries agreed to hold their required production for December at September levels.
Those 2 developments sent different signals. Producers kept their policy steady, while the market moved quickly to reprice the risk premium that had built up around the conflict.
OPEC+ chose to hold December output steady
The 7 countries that met on Nov. 1 were Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, and Oman, the countries that announced additional voluntary production adjustments in April and November 2023.
They decided to keep their December 2026 required production at the levels set for September 2026. In its statement, OPEC said the countries reiterated their collective commitment to achieve full conformity with the Declaration of Cooperation, the agreement that underpins the wider OPEC+ alliance.
The group will continue to meet each month to review market conditions. Its next meeting is scheduled for Nov. 29.
Holding output gives the producers room to respond in either direction. With supply through the Gulf disrupted and prices moving sharply from week to week, a rollover avoids committing to a change before the outcome of the diplomatic talks is clearer.
The Nov. 29 meeting now carries more weight. It will be the first chance for the group to respond to a market that has repriced quickly since its last decision.
The Iran war premium began to leave oil prices
Brent had ended October at a 6-month high, driven by fears of renewed escalation around the US midterm elections, Reuters reported.
The selling started early in the week. On Monday, Nov. 2, Brent settled down $8.66, or 7.63%, at $104.77 a barrel. Prices briefly steadied in early Asian trading the next day after reports of limited US strikes on Iran’s Qeshm island, which US officials described as defensive and aimed at preventing attacks on commercial shipping in the Strait of Hormuz.
“The report added a degree of risk premium back into the oil price,” said Tim Waterer, chief market analyst at KCM Trade.
That recovery did not last. By Wednesday, Brent had fallen below $95.
Several factors pushed prices lower. Democrats won control of the House and Senate in the midterm elections, which analysts said added uncertainty to the administration’s agenda, including its approach to the Iran conflict. Talks between Washington and Tehran resumed with mediators including Qatar and Pakistan, although no clear next steps were announced.
Tehran said contacts aimed at ending the war were continuing, and Iranian officials warned the US against further military action.
The Strait of Hormuz remains the deciding factor for energy markets
Traffic through the Strait of Hormuz has been sharply reduced since the conflict began in late February. That disruption has been the main source of the war premium, and its resolution is what traders are now trying to price.
Analysts say prices could stabilize if US military engagement is expected to decline and security around the strait improves. A lasting reopening would ease the supply constraint that has supported prices for much of the year.
That outcome is not yet in place. No agreement between the US and Iran had been announced by the middle of the week, and the military situation remained active, as the Qeshm strikes showed.
For producers, refiners, and buyers, the week’s moves show how quickly sentiment can turn. A war premium that took months to build lost a significant share of its value in a matter of days, without any change in OPEC+ policy.
Operators planning drilling programs and capital spending now face the question of which price level to plan around. A lasting de-escalation could take more of the premium out of prices, while a breakdown in talks could restore it just as quickly.
Prices are likely to have moved again since midweek. The direction from here depends on 2 things that remain unresolved: whether US and Iranian negotiators reach a deal that reopens the Strait of Hormuz, and how OPEC+ responds when it meets again on Nov. 29.
Source
The National
