Oil prices have fallen below $90 a barrel for the first time since the summer after US President Donald Trump indicated that further military strikes against Iran were unlikely if diplomatic negotiations continued to make progress.
Brent crude dropped by a further 3 per cent to $89.66 on Tuesday, extending the previous day’s decline of almost 6 per cent.
The latest fall followed Trump’s statement over the weekend that he was “highly unlikely” to authorise another sustained wave of attacks against Iran.
The announcement strengthened expectations of a possible agreement between Washington and Tehran, prompting investors to reassess the risks surrounding oil supplies from the Middle East.
Hopes of Strait of Hormuz Concessions Weigh on Oil Market
Speculation that Iran may have softened its position on the Strait of Hormuz has also contributed to the decline in oil prices.
Reports suggested Tehran had abandoned its demand to control the strategically important shipping route and impose fees on vessels passing through it.
The development came as Trump met Qatar’s prime minister, whose country has played a significant mediating role in diplomatic efforts to end the conflict.
However, analysts have cautioned that the decline in oil prices is being driven largely by expectations rather than confirmed progress towards a peace agreement.
“Oil continues to trade lower on hopes of a US-Iran peace deal rather than concrete signs of progress,” said Ole Hansen of Saxo Bank.
Oil Prices Fall 24 Per Cent From October Highs
Brent crude has declined by approximately 24 per cent since the end of October, when it was trading at around $118 a barrel.
It is now at its lowest level since late August, although prices remain significantly higher than the $60 to $70 range recorded before the Middle East conflict began earlier this year.
The market’s recent movement follows a 16 per cent weekly decline last week, marking the biggest weekly fall since the beginning of the Covid-19 pandemic.
The reduction was largely driven by growing hopes that the United States and Iran could reach an agreement to end the conflict.
British Motorists and Households Still Face Higher Costs
Despite the recent decline in international oil prices, motorists across Britain continue to face expensive fuel costs.
The average price of diesel is approaching £2 per litre, while unleaded petrol is selling at approximately 170p per litre.
Households are also facing the prospect of higher energy bills this winter, with the energy price cap expected to rise above £2,000 in January.
The cap increased from £1,663 to £1,723 last month.
Richard Hunter, head of markets at Interactive Investor, said oil prices were still contributing to inflation despite their recent decline.
US Officials Cast Doubt on Prospects of Immediate Peace Agreement
Although expectations of a diplomatic breakthrough have helped push oil prices lower, there are concerns that an agreement could still be some distance away.
US Secretary of State Marco Rubio has played down the likelihood of an imminent breakthrough in negotiations.
Military activity has also continued across the region. Iran claimed that the United States launched an overnight strike on Qeshm Island, located in the Strait of Hormuz.
Meanwhile, Houthi rebels backed by Tehran have carried out attacks in Saudi Arabia.
These developments have raised further questions about whether diplomatic efforts will be sufficient to bring the conflict to an end.
Trump Softens Position Following Republican Midterm Losses
David Morrison, senior market analyst at Trade Nation, said Trump had “toned down his bellicose rhetoric” following last week’s US midterm elections, in which the Republican Party suffered significant losses to the Democrats.
Morrison noted that Trump had threatened more aggressive military action against Iran in the period leading up to the elections as part of efforts to end the conflict.
However, the US president has since reduced his threats, indicating that further major military strikes would be unlikely provided negotiations continued to progress.
Trump’s latest comments have helped sustain optimism among oil investors, although uncertainty surrounding the negotiations and continuing attacks in the region remain significant factors for the market.
