LONDON (Web Desk): Global crude oil prices have recorded a sharp decline this week, with international benchmarks losing more than 8% in a single trading session and heading towards their steepest weekly fall in several years.
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The sell-off followed growing expectations of a possible de-escalation in the US-Israeli war against Iran after significant political developments in the United States raised hopes of renewed diplomatic efforts to end the conflict.
According to market data reported by Reuters on Friday, Brent crude futures for January delivery were trading at $97.55 per barrel, down 74 cents, or 0.8%, during the morning session. US West Texas Intermediate (WTI) crude futures also declined 73 cents, or 0.8%, to $89.79 per barrel.
Brent crude was on track for a weekly decline of approximately 16%, potentially marking its steepest percentage drop since the beginning of the COVID-19 pandemic. WTI was heading towards a weekly loss of more than 13%.
However, the decline was not continuous. Both benchmarks recovered some losses following sharp falls earlier in the week, reflecting continuing uncertainty over oil supplies from the Middle East.
US political developments trigger oil sell-off
The sharpest movement came on Wednesday, November 4, when international oil prices fell more than 8% following the US midterm election results.
The Democrats’ sweeping electoral gains raised expectations that political pressure on President Donald Trump could encourage Washington to pursue a diplomatic settlement of the conflict involving Iran.
Investors began reassessing the geopolitical risk premium that had pushed crude prices higher during the conflict.
Market participants believe that any meaningful reduction in military tensions could facilitate the restoration of oil exports from the Middle East, particularly through the strategically important Strait of Hormuz.
The waterway is one of the world’s most important energy shipping routes, connecting major oil-producing countries in the Persian Gulf with international markets.
According to Reuters, Brent crude settled at $94.62 per barrel on November 4, following a decline of $8.98, or 8.7%. The contract subsequently recovered to close at $98.29 on Thursday, November 5, after gaining $3.67.
US WTI also rebounded on Thursday, settling at $90.52 per barrel, up $2.40, or 2.72%.
Expectations of increased oil supplies
Another factor contributing to the decline is the possibility of increased crude oil supplies from the Gulf region.
The resumption of shipments through the Strait of Hormuz has eased some concerns about prolonged supply disruptions, although transportation costs and security risks remain elevated.
JPMorgan estimated that the recovery in Gulf oil supplies had pushed the global oil market into a supply surplus of approximately 1.1 million barrels per day in September and 1.4 million barrels per day in October.
A surplus occurs when global oil production exceeds consumption, potentially putting downward pressure on prices if the imbalance persists.
Meanwhile, expectations of weaker demand and recovering exports have encouraged traders to reduce their exposure to crude oil futures.
Shipping attacks keep markets volatile
Despite the sharp decline, concerns over maritime security continue to prevent a sustained fall in oil prices.
Attacks on commercial vessels in the Gulf and Strait of Hormuz have renewed fears of possible disruptions to crude shipments.
Reuters reported that attacks on oil-carrying vessels remained close to record levels, according to information from Britain’s maritime security agency, UK Maritime Trade Operations.
These developments have demonstrated that the geopolitical risks affecting international oil supplies have not disappeared.
Market analysts have cautioned that any renewed military escalation or disruption to shipping routes could quickly reverse the recent decline.
Implications for Pakistan
The movement in international crude oil prices is particularly important for Pakistan, which relies heavily on imported petroleum to meet domestic energy requirements.
A sustained decline in global oil prices could reduce the country’s petroleum import bill, ease pressure on foreign exchange reserves and potentially lower inflationary pressures.
Cheaper imported crude could also help reduce costs for the transportation, manufacturing and energy sectors.
However, lower international prices do not automatically translate into immediate reductions in domestic petroleum prices. The impact depends on import costs, exchange rate movements, government taxation, petroleum levies and domestic pricing decisions.
For Pakistan, the duration of the international price decline will therefore be as important as its magnitude.
Oil markets are expected to remain sensitive to developments surrounding the Iran conflict, the security of Middle Eastern shipping routes, global demand and the availability of supplies in the coming weeks.
