Oil refinery at night ©Adobe Stock Images
Oil prices declined almost 4% on Monday as discussions between Iranian and Qatari officials raised expectations of a possible agreement to end the US-Israeli conflict with Iran, potentially easing disruptions to energy supplies across the Middle East.
The decline followed renewed diplomatic activity over the weekend, with investors reassessing the geopolitical risks that had pushed crude prices to elevated levels during October.
At 09:00 GMT, Brent crude futures fell $4.20, or 3.7%, to $109.23 per barrel. US West Texas Intermediate (WTI) crude declined $3.98, or 3.8%, to $100.14 per barrel.
Despite the latest losses, oil prices remained elevated following months of supply uncertainty linked to the conflict and disruptions to shipping through the Strait of Hormuz.
Iran-Qatar Negotiations Support Expectations of a Diplomatic Breakthrough
The latest decline in crude prices followed reports of ongoing discussions between Iranian officials and Qatari mediators aimed at finding a resolution to the conflict.
Iranian negotiators departed talks in Doha on Sunday, although an official familiar with the meeting told Reuters that their departure was not the result of difficulties in the negotiations.
Tamas Varga, an analyst at oil brokerage PVM, said, “The beginning of the new month has revived expectations that the diplomatic deadlock involving Iran could be resolved.”
The negotiations have renewed hopes that a settlement could reduce the risk of further military escalation and allow energy shipments from the region to recover.
Iranian Foreign Minister Abbas Araqchi said on Sunday that discussions were continuing and making progress, with the objective of maintaining consultations through Qatari mediators.
Araqchi added that Tehran remained prepared for “both military defence and diplomatic engagement”.
The comments suggested that Iran was continuing to pursue negotiations while maintaining its position on the possibility of further military confrontation.
Absence of Weekend Escalation Eases Pressure on Energy Markets
Brent crude ended October at its highest level in six months as traders assessed the possibility of renewed hostilities following Tuesday’s US midterm elections.
However, the absence of a significant military escalation over the weekend helped reduce some of the immediate concerns surrounding regional oil supplies.
Tim Waterer, chief market analyst at KCM Trade, said, “Continued expectations of diplomatic progress, together with the lack of a significant escalation in military activity over the weekend, have temporarily reduced the upward pressure on oil prices.”
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The latest price movements indicate that traders are responding to signs of potential diplomatic progress, although the situation remains uncertain.
Any breakdown in negotiations or renewed attacks on energy infrastructure could quickly change market expectations.
Strait of Hormuz Disruptions Continue to Affect Global Oil Supplies
The diplomatic discussions come amid continuing concerns about shipping security in the Strait of Hormuz, a critical route for oil exports from the Persian Gulf.
Attacks on oil tankers travelling through the waterway have increased recently, contributing to uncertainty over the reliability of regional crude shipments.
Nevertheless, some major exporters have shown signs of increasing shipments despite the difficult operating environment.
Saudi Arabia raised its crude oil exports in October compared with September, according to two of three ship-tracking companies cited in the report.
The increase occurred despite attacks by Yemen’s Iran-aligned Houthi movement on Saudi energy infrastructure.
The export data suggest that some producers have been able to maintain or increase shipments despite ongoing security threats.
However, the broader impact of the conflict on global oil availability remains substantial.
Global Oil Inventories Decline by Nearly One Billion Barrels
The conflict, which began at the end of February, has contributed to a significant reduction in global oil inventories.
The chief executive of Abu Dhabi’s state-owned energy company ADNOC said the world had drawn down nearly one billion barrels of oil from inventories since the war disrupted shipping through the Strait of Hormuz.
The reduction reflects the extent to which supply interruptions have affected the balance between global oil production and consumption.
Lower inventories can leave markets more vulnerable to further disruptions, particularly if demand remains strong or regional exports decline again.
Although diplomatic progress could help stabilise supplies, rebuilding depleted inventories may take time.
Goldman Sachs Raises Oil Forecasts as Supply Risks Persist
Despite Monday’s decline, some analysts believe oil prices could rise further if supply disruptions continue.
Goldman Sachs increased its oil price forecasts on Sunday, citing elevated risks to production and exports from the Persian Gulf.
The bank warned that Brent crude could reach $140 per barrel in 2027 if Gulf oil production remains 3.5 million barrels per day below its 2025 average.
Such a scenario would indicate a prolonged supply shortfall, potentially sustaining upward pressure on crude prices.
Goldman Sachs said, “More frequent attacks on shipping, damage to energy facilities and a longer-lasting geopolitical risk premium remain the main factors that could push oil prices higher.”
The forecast highlights the potential for renewed price increases even if diplomatic developments provide temporary relief.
Oil Market Outlook Remains Dependent on Diplomacy and Supply Security
Monday’s decline reflects renewed optimism that negotiations involving Iran and Qatar could lead to progress towards ending the conflict.
However, the combination of depleted inventories, continuing threats to shipping and uncertainty surrounding regional production means that supply risks remain significant.
Investors will be watching developments in the Doha negotiations, security conditions in the Strait of Hormuz and export volumes from major Gulf producers.
While a diplomatic agreement could reduce geopolitical pressure on crude prices, further attacks or prolonged production disruptions could support another increase in oil prices.
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