Oil benchmarks recovered sharply on Thursday as geopolitical risks in the Persian Gulf resurfaced, dampening earlier market optimism regarding a potential diplomatic resolution to the Iran conflict.
Brent rebounded 3.58% to $98.01 on Thursday after plunging $8.98 to $94.62 on Wednesday, as Eurasia Group cut the odds of a negotiated Iran deal to 10% and put renewed U.S. strikes at 60%. With five vessel incidents in the Persian Gulf since Sunday and peace prospects receding, the geopolitical risk premium should rebuild. However, Gulf crude exports have recovered toward pre-war levels, capping the upside.
Traders reconsidered whether the midterm election results would actually lead to a quick end to the Iran war. Eurasia Group cut its odds of a negotiated agreement to 10% and put renewed U.S. strikes at 60%, and Brent climbed $3.39 to $98.01.
Brent fell roughly 18% over the week, including a $8.98 (8.7%) plunge on Wednesday to $94.62, the lowest settlement since August 31, before the Thursday rebound.
WTI rose $2.21 (2.51%) to $90.33 on Thursday after shedding $7.97 (8.3%) on Wednesday to settle at $88.12, its lowest close since August 31. Renewed strike risk (60% per Eurasia Group) and persistent Persian Gulf shipping incidents support a recovery of the risk premium. Oversold conditions after an 18% weekly drop amplify the bounce, but recovered Gulf exports limit the move.
Traders reversed part of Wednesday's liquidation as a quick diplomatic resolution to the Iran war looked less likely, with Eurasia Group putting renewed U.S. strikes at 60%. WTI gained $2.21, or 2.51%, to $90.33.
The article notes risks are unresolved: shipping incidents continue in the Persian Gulf and talks remain deadlocked, but Gulf exports have recovered toward pre-war levels and any diplomatic progress could send prices lower again.
Oil prices rebounded on Thursday, with Brent crude climbing 3.58% to $98.01 and WTI rising 2.51% to $90.33. The recovery follows a brutal 18% weekly selloff triggered by midterm election results that initially fueled speculation of a swift end to the Iran conflict. Market sentiment shifted as Eurasia Group slashed the probability of a diplomatic deal to 10% and warned of a 60% chance for renewed U.S. strikes.
Traders reconsidered the likelihood of a quick end to the Iran war following midterm election results. Eurasia Group cut the odds of a negotiated deal to 10% and increased the probability of renewed U.S. strikes to 60%, prompting a reversal of Wednesday's heavy futures liquidation.
Both Brent and WTI fell roughly 18% over the week. Wednesday saw an extraordinary collapse, with Brent plunging $8.98 (8.7%) to $94.62 and WTI shedding $7.97 (8.3%) to $88.12, marking the lowest settlements since August 31.