Week in Review – Oil Prices Retreat on Iran Peace Hopes and Weaker Global Demand

Oil prices are heading toward one of the steepest weekly declines in years, with Brent crude on track to fall 16% and West Texas Intermediate (WTI) down approximately 13%. This morning, Brent futures were trading at $98.60 per barrel, while WTI stood at $91.00. For Brent, the weekly percentage decline would be the largest since the beginning of the COVID-19 pandemic in 2020. The sharp drop follows the U.S. midterm elections, renewed discussions about a potential resolution to the Iran conflict, and growing evidence that high energy prices are reducing global oil demand.

The U.S. midterm elections have brought new uncertainty to energy markets. Following Republican losses, expectations of a possible de-escalation in the U.S.-Israeli war with Iran contributed to an 8% decline in oil prices on Wednesday alone. President Donald Trump has indicated that he will soon decide whether to resume military operations against Iran, continue applying economic pressure, or pursue a negotiated agreement that could involve significant concessions.

A diplomatic resolution could allow more crude oil to return to international markets, adding downward pressure on prices. However, the conflict’s effects on energy transportation and regional supply remain significant.

Iranian crude exports have been close to zero over the past two months under the current U.S. naval blockade, with approximately 200,000 to 300,000 barrels per day still reaching the market through Iraq. Although more tankers are crossing the Persian Gulf, shipping availability remains limited, and freight rates are elevated. Attacks on vessels in the Gulf and Strait of Hormuz have also continued, temporarily supporting crude prices despite the broader decline.

Beyond geopolitical developments, the balance between global oil supply and demand is becoming an increasingly important factor in pricing.

According to JPMorgan, global oil supply exceeded consumption by approximately 1.1 million barrels per day in September, with the surplus widening to 1.4 million barrels per day in October. The bank attributes the change to recovering Middle Eastern shipments, higher production outside the region, and weaker consumption.

Goldman Sachs reported a similar shift, estimating that global oil inventories stopped declining during September and October after significant reductions earlier in the conflict. The bank now considers the market broadly balanced, compared with the supply deficit experienced in March.

According to Vortexa, crude and condensate exports from the Gulf averaged 14 million barrels per day in October, approximately 86% of pre-war levels. However, refined product exports averaged just 3.1 million barrels per day, slightly more than half their normal volume. This difference helps explain why crude prices are retreating while diesel and other refined fuel markets continue to face supply challenges.

U.S. distillate inventories, which include diesel and heating oil, declined by approximately 3.6 million barrels to 99.3 million barrels during the week ending October 30. According to the Energy Information Administration (EIA), this represents the lowest level since 2003. The decline occurred even as refinery utilization increased to 94.5%, highlighting how difficult it has been to rebuild inventories despite stronger refinery activity.

European diesel markets face similar challenges. Diesel and gasoil inventories in the Amsterdam-Rotterdam-Antwerp storage hub increased to 1.78 million tonnes during the week ending November 5, but remained below the five-year seasonal average of 1.98 million tonnes. European diesel margins also declined during the week, although near-term contracts continued trading at substantial premiums to later deliveries, indicating persistent concerns about immediate supply.

Russia’s refining sector is another area of concern. Ukrainian drone attacks targeted two major Russian refineries during the first week of November, including facilities with processing capacities of approximately 300,000 and 340,000 barrels per day. The extent of the damage remains uncertain, but additional disruptions could limit Russia’s ability to increase diesel exports.

Under an October agreement with Washington, Russia was expected to increase diesel shipments, with November export quotas potentially reaching 2 million tonnes compared with 500,000 tonnes in October. However, deliveries remain uncertain. As of November 5, no Russian diesel cargoes had reached the United States under the agreement, although subsequent shipping reports indicated that several tankers carrying Russian diesel were heading toward the East Coast.

Gasoline markets are showing a somewhat different pattern. U.S. gasoline futures weakened substantially during the week, with front-month RBOB prices averaging $2.82 per gallon, down 11.88%. Yet domestic gasoline inventories remain below normal levels.

National gasoline stocks declined by 222,000 barrels to 208.96 million barrels during the week ending October 30, approximately 3.6% below the three-year seasonal average. Inventories in the Midwest reached another record low, while East Coast stocks also declined significantly. At the same time, implied gasoline demand increased from 8.36 million to 8.81 million barrels per day.

Higher refinery output has helped limit the overall inventory decline, with U.S. gasoline production increasing by 463,000 barrels per day to 9.7 million barrels per day. National average retail gasoline prices declined 2.72% from the previous week to $4.15 per gallon.

The recent decline in oil prices is significant, but it does not mean the challenges affecting fuel availability have been resolved. For businesses managing fuel costs and supply, the distinction between falling crude prices and persistent refined-product constraints will remain important in the weeks ahead.

Prices in Review

Crude prices experienced significant declines during the week, with a brief midweek recovery before another drop on Thursday. Prices opened at $102.39 on Monday and fell to $96.30 on Tuesday, before edging up to $96.81 on Wednesday. The downward trend intensified on Thursday, when crude opened at $88.05. Prices rebounded to $91.20 on Friday, recovering some of the previous day’s losses. Overall, crude prices declined by $11.19 per barrel, representing an approximate 10.9% decrease for the week.

Diesel prices started at $4.6746 on Monday. Prices dropped to $4.4052 on Tuesday before rebounding to $4.5700 on Wednesday. Diesel prices reversed on Thursday, falling to a weekly low of $4.2055 before opening at $4.3680 on Friday. Despite the rebounds, diesel prices declined by $0.3066 per gallon, representing an approximate 6.6% decrease for the week.

Gasoline prices faced considerable downward pressure during the week, with brief recoveries unable to offset the declines. After opening at $3.1144 on Monday, prices fell to $2.8912 on Tuesday, then recovered to $2.9579 on Wednesday. Another drop followed on Thursday, bringing gasoline to a weekly low of $2.7404. Prices opened higher at $2.7717 on Friday. Overall, gasoline prices decreased by $0.3427 per gallon, representing an approximate 11.0% decline for the week.