Brent crude fell below $90 a barrel for the first time since August on Tuesday after US President Donald Trump said the nearly nine-month conflict with Iran could end “fairly soon”, raising expectations of a reduction in geopolitical risks to global oil supplies.
Brent, the international benchmark used to price about 80% of global crude, was down 2.65% at $90.14 a barrel at 5:33 a.m. ET, after January futures briefly dropped below the $90 threshold earlier in the session. US West Texas Intermediate crude declined 2.4% to $84.78.
The decline followed Trump’s comments on Monday that Tehran was engaging with Washington and that the conflict could be approaching an end.
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“We’re seeing momentum toward the end of this conflict. I think it’s going to be ending fairly soon,” Trump told reporters at the White House after meeting Qatar’s prime minister, Sheikh Mohammed bin Abdulrahman Al Thani.
He also said Iran was “talking very politely” with Washington and that the country’s military capabilities were “effectively over”.
In a separate Truth Social post, Trump said Qatar, Saudi Arabia, the United Arab Emirates, Bahrain and Kuwait would “prefer the status quo”. He was referring to maintaining a naval blockade against Iran and preventing the country from using ground routes to transport advanced weapons and other materials.
The comments triggered a fresh retreat in oil prices as traders reduced some of the geopolitical risk premium built into crude during the conflict. However, uncertainty over negotiations, the future of the Strait of Hormuz and the possibility of renewed military action continues to complicate the outlook.
Crude prices have been unusually volatile this year, responding sharply to developments in the US and Israel’s conflict with Iran.
Brent began the year at around $60 a barrel before surging to as high as $130 in March and April as military strikes escalated. Prices subsequently retreated in June and July before climbing again as the conflict appeared increasingly entrenched.
Although crude flows through the Strait of Hormuz have largely recovered, the disruption exposed the vulnerability of a global energy system heavily dependent on the waterway. The volatility has also affected consumers through higher prices for refined products, including diesel, petrol and jet fuel.
Supply pressures have been compounded by wider geopolitical disruptions, including Houthi attacks on Saudi Arabia and the Russia-Ukraine war, against a background of limited global refining capacity.
The political consequences of higher energy prices are growing in Washington. Trump and Vice President JD Vance have acknowledged that public opposition to the Iran war and rising energy costs contributed to the Republican Party’s poor performance in last week’s US midterm elections.
Washington had largely restrained its military operations against Iran since September. Trump said in early October that further strikes would not resume until after the midterms. However, the US subsequently carried out what he described as “minor strikes” following reports that two missiles struck Qeshm Island, near the Strait of Hormuz off Iran’s southern coast.
The latest comments have therefore encouraged expectations of de-escalation, although they have not established that a negotiated settlement is close.
ING strategists Ewa Manthey and Warren Patterson said markets had been removing some of the geopolitical premium from oil prices as expectations of reduced tensions increased.
“The market has continued to unwind some of the geopolitical risk premium built into prices in recent weeks as expectations grow that the conflict between the US and Iran could move towards de-escalation,” they said in a note on Tuesday.
They added that recovering regional oil flows and reports that Iran could be softening its position on control of the Strait of Hormuz had eased concerns about a prolonged disruption to one of the world’s most important oil transit routes.
“For now, the return of more Gulf barrels and the prospect of easing tensions are taking some of the geopolitical premium out of crude. However, with regional negotiations still uncertain and infrastructure risks persisting, we expect oil prices to remain sensitive to developments in the Middle East,” the strategists said.
Analysts Question Whether Washington and Tehran Can Reach a Deal
Not all energy analysts believe the latest diplomatic signals will produce a peace agreement.
Fereidun Fesharaki, chairman of energy consultancy FGE, told CNBC’s Squawk Box Asia on Tuesday that he saw little prospect of a deal because the positions of Washington and Tehran remained too far apart.
He said the US wanted Iran to transfer its enriched nuclear material out of the country, a demand he believed the Iranian government would not accept. He also questioned whether Tehran would agree to reopen the Strait of Hormuz to unrestricted oil flows under the terms sought by Washington.
“The difference between the two sides is so wide, it cannot be bridged,” Fesharaki said.
“So, with these two in between, I just can’t see a deal being made.”
He argued that Trump faced a choice between declaring victory and withdrawing or resuming military operations. Fesharaki said any renewed war would have to begin within a two-week window, although he did not provide further details supporting that assessment.
The political situation in Israel adds another complication. Prime Minister Benjamin Netanyahu’s party failed to secure a majority in last month’s election, while rival Gadi Eisenkot, a former chief of the Israel Defense Forces, was officially tasked with forming a government on Sunday.
Developments in Israel could influence the regional security outlook and the calculations surrounding any agreement with Iran.
US Inflation Data Adds Another Market Risk
Alongside the geopolitical developments, investors were monitoring US Treasury yields ahead of the October consumer price index report, scheduled for release at 8:30 a.m. ET on Tuesday.
The yield on the two-year Treasury note, which is particularly sensitive to expectations for Federal Reserve interest-rate decisions, rose more than six basis points to 4.6136%. The 10-year yield increased two basis points to 4.882%, while the 30-year yield was broadly unchanged at 5.261%.
Bond yields move inversely to prices, while one basis point represents 0.01 percentage point.
Economists surveyed by Reuters expected the October CPI to rise 0.3%, compared with 0.6% in September. Core consumer prices, which exclude food and energy, were forecast to increase 0.2%, down from 0.3% in the previous month.
Investors were looking for evidence that inflationary pressure was easing, particularly as higher energy costs have complicated the outlook for monetary policy. The October producer price index, another important measure of inflation, was due on Friday.
The reports could influence expectations for the Federal Reserve’s next interest-rate decision. Markets had largely priced in a 25-basis-point rate hike in December, according to CME Group’s FedWatch tool.
The inflation outlook has also become more complicated following stronger-than-expected US employment data. The economy added 165,000 jobs in October, more than twice Wall Street’s forecasts, suggesting that labor-market conditions remained stronger than anticipated.