Oil Prices Plunge 7% as U.S. and Iran Signal Room for Diplomacy

Oil prices plunged nearly 7% on Monday after Washington and Tehran both signaled they would give diplomacy a chance, wiping out part of the war premium that lifted crude through October. Brent traded at $105.60 per barrel, down $7.85, and WTI fell $7.20 to $96.92. Iranian President Masoud Pezeshkian said on Monday that the Supreme Leader has granted the government “certain authorities” over peace talks and that Tehran “will try to resolve the problem with dialogue,” state media reported. Foreign Minister Abbas Araghchi said negotiators in Qatar are working on a proposal that could reopen the Strait of Hormuz in as little as two days if Washington meets a series of conditions. He said Tehran, which has demanded an end to the U.S. naval blockade of its ports, the lifting of oil sanctions and a halt to fighting on all regional fronts, is not holding direct talks with the United States.Secretary of State Marco Rubio said on Saturday that no decision had been made on new strikes and that President Trump prefers a diplomatic resolution. Israeli Prime Minister Benjamin Netanyahu urged Trump in a Saturday call to resume strikes immediately after Tuesday’s midterm elections, and Trump said he wants to give the talks more time. Asked whether he would return to war this week, Trump said: “Let’s say I did. Would I tell you?”Traders had been bracing for a new escalation after the vote, and Brent briefly reached $118 in October. Goldman Sachs estimates that a geopolitical risk premium of about $27 per barrel accounts for most of that rally. The bank raised its December Brent forecast to $105 from $90 and expects Brent to average $88 in 2027, up from $80. ANZ sees Brent ending 2026 at $105, and UBS at $110. Goldman’s Daan Struyven said the premium would come off quickly only with “a diplomatic solution that market participants see as sustainable.”The UK Maritime Trade Operations centre reported a projectile hitting a vessel in the Strait of Hormuz on Sunday, days after a tanker fire in the strait pushed Brent to $117. Last week, the Houthis claimed fresh strikes on Saudi Arabia’s Ras Tanura and Rabigh refineries and an Aramco facility at Abqaiq, which Riyadh has not confirmed. Seven OPEC+ producers, including Saudi Arabia and Russia, agreed on Sunday to keep December production targets unchanged.By Charles Kennedy for Oilprice.comMore Top Reads From Oilprice.comBrent Hits $117 as Tanker Catches Fire in Strait of HormuzJapan to Tap $7 Billion from Government Fund to Subsidize Gasoline PricesEuropean Gas Tops 101 Euros for First Time Since 2022