Oil prices concluded the week with substantial losses as investors weighed the geopolitical risks surrounding Iran following the U.S. midterm elections.
Despite a slight uptick on Friday, Brent crude fell over 16% and WTI dropped nearly 13% for the week. Analysts suggest an 80% chance of renewed military conflict, which could push prices above $100, though diplomatic efforts offer a counterpoint.
Oil Prices Plummet Weekly as Midterm Election Uncertainty and Iran Tensions Weigh on Markets
Published: November 11, 2022
Key Points
- An 80% probability of military conflict resuming between the U.S. and Iran is seen by Bob McNally, President of Rapidan Energy Group.
- Oil prices experienced a significant weekly decline amid fading hopes for a diplomatic resolution to the Middle East conflict.
Crude oil prices concluded the week with a sharp downturn on Friday, as investors grappled with the potential for heightened military tensions between the United States and Iran following the recent midterm elections.
International benchmark Brent crude futures saw a modest gain of 3 cents, settling at $98.32 per barrel. Similarly, U.S. West Texas Intermediate crude futures rose by 31 cents to close at $90.83 per barrel. Despite these daily gains, the broader weekly trend showed a significant decline, with Brent futures falling over 16% and U.S. crude futures dropping nearly 13% for the week.
Market participants are closely monitoring the post-election landscape, assessing whether the conclusion of the U.S. midterm elections could trigger renewed actions against Iran, thereby posing a threat to vital oil supplies originating from the Middle East.
Bob McNally, the founder and president of Rapidan Energy Group, expressed a strong conviction in an interview with CNBC's "Squawk Box Asia," stating that he perceives an 80% probability of military conflict resuming. He further projected that both major oil benchmarks could surge past the $100 per barrel mark under such circumstances.
Conversely, glimmers of hope for a diplomatic breakthrough have emerged. Reports suggest that Iran may have transmitted a nuclear proposal to Washington via Qatar, according to Reuters, citing a senior Iranian official. This development introduces a layer of uncertainty into the geopolitical calculus.
Adding to the complex situation, Iran reported three additional attacks on oil tankers in the strategic Strait of Hormuz on Thursday. Data from the UK Maritime Trade Operations (UKMTO) further indicated that attacks on vessels in the region are continuing at a near-record pace, underscoring the persistent risks in the supply chain.
"President Donald Trump is determined, as a legacy item, almost at all costs, to prevent Iran from getting a nuclear weapon, having them give up their nuclear capabilities," McNally elaborated on the geopolitical drivers. "The Iranian regime, on the other hand, is not willing to do it. And as long as that core difference in that deal space is absent, the escalation dynamic remains in place."
McNally's assessment of the risks is echoed by other industry observers, including Samy Chaar, chief economist at Lombard Odier, and Luca Bindelli, head of investment strategy at the same firm.
— CNBC's Lim Hui Jie contributed to this report.
