Brent Crude Posts Its Steepest Weekly Fall Since 2020 on US-Iran Deal Hopes

Synopsis

Nov. 6: Brent crude futures ended at $98.32 a barrel, having dropped more than 16% for the week, the biggest weekly loss since the onset of the pandemic. The chances of de-escalating relations with Iran were high after the Republicans suffered losses in US midterm elections. But the attacks on tankers did not stop and one analyst estimates there is an 80 percent chance of renewed fighting. Reduced prices alleviate India's import dependence, as it imports majority of crude oil.

The price move

US crude settled at $90.83 and Brent futures rose 3 cents to $98.32 a barrel on Friday. Brent was down over 16% for the week and US crude was down by close to 13%. It was the biggest percentage decline in a week for Brent since the early days of the pandemic and the largest in absolute terms since LSEG data goes back to 1988, according to Reuters data RTÉ reported.

On Wednesday alone, the price of Brent finished 8.7% lower at $94.62, the lowest since Aug. 31. Intraday prices reached into the vicinity of $93 before recovering.

The drop-off started following the U.S. midterm elections, when the Republican Party led by President Donald Trump lost ground. Markets interpret the result as a boost in hopes of the US-Israeli war on Iran coming to an end. Brent had previously been topped at over $116 in late October as well as briefly at over $126 in late April.

Why it didn't crash even more?

Prices were bolstered by attacks on vessels in the Gulf and in the Strait of Hormuz. Iran has experienced additional attacks on tankers on Thursday. Bob McNally, the CEO of Rapidan Energy, told CNBC that he was prepared for “80% chance” of a military showdown to resume, reminding people that the price is based on the expectation that a deal hasn't been signed.

Why it's a big deal if the price of crude drops for India

Most of the crude requirement is imported into India. Lower prices will bring down the import bill and provide relief to the rupee. They reduce the costs for aviation, transport, chemicals and manufacturing, and they contribute to contain inflation. They also leave a greater margin for the government on fiscal pressures to the fuel industry. The benefit hasn't yet reached the pump with retail petrol and diesel price unchanged across the country, reports said.

The outlook

Shipping through Hormuz will recover or not and prices will be determined by the success of the Qatar mediation. This week, analysts have indicated that the market could continue to return some of the risk premium it has accrued over the last few months. Others have pointed out that the result of the election is not the end of the conflict.