Oil Futures Rebound as Traders Reassess Iran Diplomacy Outlook

The recovery followed Wednesday’s selloff, which came as Democratic victories in the midterm elections fueled expectations of greater pressure on President Donald Trump to seek a diplomatic resolution to the Iran conflict. Traders reassessed those expectations on Thursday.

BOK Financial said in a Thursday note that the prior session’s decline was likely overdone, citing heavy sell-stop activity below the 50-day moving average. The bank described Thursday’s move as a retracement and said greater congressional scrutiny of U.S. war funding, alongside recovering Middle Eastern oil flows, could affect Iran’s negotiating position.

MUFG analysts said the premium for near-term Brent deliveries had narrowed. The spread between the nearest futures contracts fell below $2.50 a barrel, from more than $5 in mid-October, reflecting reduced concern about immediate supply disruptions and growing expectations for a diplomatic resolution, they said.

J.P. Morgan estimated Middle Eastern oil exports averaged 20.7 million barrels a day in October, up from a March low of 9.8 million. The bank also estimated global supply exceeded demand by 1.1 million barrels a day in September, with the surplus widening to 1.4 million in October. Security threats and higher shipping costs continue to complicate shipments through the Strait of Hormuz.

U.S. inventory figures offered a counterpoint to the supply recovery. The Energy Information Administration reported Wednesday that crude stocks fell by 865,000 barrels to 409.8 million last week, while distillate inventories dropped by 3.6 million barrels to 99.3 million.

December WTI was up $2.262 a barrel. In refined products, December ULSD gained 10.96 cents to $4.3151 a gallon, and December RBOB rose 0.97 cent to $2.7383. January ULSD traded 9.4 cents higher at $4.2057 a gallon, while January RBOB added 1.47 cents to $2.6944. February Brent was up $2.02 at $94.35 a barrel.