Oil Drops by More Than a Dollar Amid Hopes for De-escalation in the Middle East and Ukraine

Oil prices fell by more than $1 per barrel during Thursday’s trading, as hopes grew for progress in peace talks related to the Middle East war and the Russia-Ukraine conflict, bolstering expectations that the geopolitical risks that had supported prices over recent months would recede. Brent crude futures dropped $1.14, or 1.2 percent, to $91.62 per barrel by 01:41 GMT, while U.S. West Texas Intermediate crude futures fell $1.04, or 1.2 percent, to $85.49. The decline followed a rise in both benchmarks on Wednesday, with Brent gaining about 1.4 percent and U.S. crude rising 0.6 percent, after both had hit two-month lows on Monday.

Hiroki Kikukawa, chief strategist at Nissan Securities Investment, said markets were falling due to expectations of behind-the-scenes diplomatic moves to reach a ceasefire between Russia and Ukraine, alongside expectations that the Iran war would not escalate ahead of the upcoming U.S.-China summit next week. However, he noted that continued uncertainty over the Strait of Hormuz makes a major market price collapse unlikely.

In this context, Russian and Ukrainian negotiators agreed on a large prisoner exchange during two days of peace talks in Abu Dhabi that ended on Wednesday, despite U.S. mediators indicating that disagreements persist on key issues, including territory. Ukrainian President Volodymyr Zelensky said Kyiv hopes to achieve tangible results in ending the war this year.

On the Iranian file, Iranian Security Council Secretary Mohsen Rezaei said his country would not allow any quantity of enriched nuclear material to leave its territory, warning that any new U.S. strikes would have consequences. Washington had confirmed that the nuclear file must be part of any preliminary negotiations aimed at ending the eight-month war, while U.S. officials downplayed the need for additional military strikes.

On the fundamentals side, OPEC+ crude oil production jumped in October, led by a large increase in Saudi output, despite ongoing shipping disruptions through the Strait of Hormuz. In the United States, crude oil inventories rose by about 9 million barrels last week, according to preliminary data reported by market sources citing the American Petroleum Institute. Official data from the U.S. Energy Information Administration is scheduled for release on Thursday, after being delayed by a day due to a public holiday on Wednesday.