Oil slips after early surge as US-Iran tensions persist, Brent falls 3%
New Delhi: Oil prices fell on Tuesday after an initial surge, with Brent crude dropping as much as 3% from the day’s high, as markets weighed reports of fresh US strikes on Iran against signs of a possible diplomatic resolution to the conflict.
Brent had touched an intra-day high of $106.90 per barrel before retreating. At the time of writing, the January contract of Brent on the Intercontinental Exchange was trading at $102.76 per barrel, down 1.92% from its previous close.
Prices rose earlier in the day over concerns of escalation after the US midterm elections. A report by the Wall Street Journal that the US attacked Iran’s Qeshm Island on Monday and that Washington has been carrying out “limited strikes” against the country in recent weeks added to concerns of a fresh escalation. However, prices have since eased.
Commercial ships continue to come under attack in the Strait of Hormuz. According to the United Kingdom Maritime Trade Operations Centre, at least four ship attacks have been reported in the past three days.
Diplomatic signals
Amid the continuing conflict, the Trump administration has indicated a possible diplomatic solution. US Vice President JD Vance recently told CNN: “The president and I both feel really good about the prospect of potentially coming to a negotiated settlement.”
On Sunday, US Secretary of State Marco Rubio said President Donald Trump would like to resolve the Iranian war diplomatically, and prefers not to use military force.
Further, Iranian president Masoud Pezeshkian said on Monday that the Supreme Leader of Iran Mojtaba Khamenei had granted the government “certain powers” to pursue talks with the US aimed at ending the war in West Asia.
“We are striving to resolve the issue through dialogue. In this regard, the Supreme Leader has also conferred certain powers on the government,” Pezeshkian was quoted as saying by the state news agency IRNA.
Oil prices were largely elevated last month and traded around $115 per barrel in the last week of October. The Indian crude basket averaged $120 per barrel last month, before easing to $107 per barrel as of 2 November.
The volatility poses a concern for India as it imports about 90% of its overall crude oil requirements. The import bill in the last fiscal year stood at around $123 billion. An increase of $1 per barrel in prices for a year could raise the country’s annual import bill by ₹18,000 crore. This year, in the first six months itself India has imported oil worth $123 billion, equal to the value of imports in the last fiscal.
An increase in the import bill is set to have inflationary pressure if the increase in cost is passed on to downstream products and the consumers, which will impact GDP growth, or it may impact the current account deficit of the country.
Goldman Sachs has already revised their price forecast for Brent crude upwards and now expects the benchmark crude to average $105 in December and remain elevated next year as well.
