Brent at $90, WTI below $85. Where could the oil decline stop?
On November 10, #BRENT fell to $90.42, and #WTI to $84.68 per barrel. In the previous session, Brent futures lost 5.85%, and WTI lost 4.38%. A new wave of selling began after Donald Trump stated that strikes on Iran are unlikely as long as negotiations are progressing. After meeting with the Prime Minister of Qatar on November 9, the US President confirmed that he currently sees no need to resume strikes.
All four targets of our forecast from November 3 were met last week. #BRENT passed $103 and $100, and #WTI passed $95 and $94. Since then, both benchmarks have lost an additional $9+ per barrel.
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Why oil continued to fall
Last week, initial reports of Iran's contacts with Qatari mediators eased concerns about supply disruptions. Now Washington has publicly signaled its readiness to refrain from new strikes. The lower the probability of escalation, the less buyers are willing to pay a premium for the risk of export interruptions.
An additional signal came from Iraq. The country's Foreign Minister announced an agreement with the US, which provides for transporting Iraqi oil through the Strait of Hormuz via a route along the coast of Oman. If tankers can regularly use this route, part of the supply will become more predictable.
What could bring buyers back
Trump stated that the US will maintain the maritime blockade of Iran. Meanwhile, reports continue to emerge from the Strait of Hormuz area regarding attacks on vessels. It is now important for the market whether tankers can pass through the strait regularly. New disruptions could quickly return part of the risk premium to the price.
According to analysts FreshForex, the decline may continue if negotiations with Iran progress and flights of Iraqi tankers confirm that the agreement with the US is working. Then buyers will have fewer reasons to pay a premium for the risk of supply disruptions. Under such a scenario, by the end of the week, #BRENT could drop to the $87–88 per barrel range, and #WTI to $82–83.
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