Oil Holds Near Two-Month Low as Gulf Flows Rebound, Peace Talks Stall

Market snapshot

Oil was little changed near recent lows, with tensions between Washington and Tehran subdued and no sign that peace talks are advancing to end the Middle East war. Brent traded near $92 after a 1.4% gain on Wednesday, and WTI sat around $86.

Even after climbing more than 50% this year, Brent has dropped sharply this month on hopes the conflict ends and as shipments out of the Persian Gulf increase. That combination has taken some heat out of prices.

Supply is back, with caveats

Saudi Arabia told OPEC its October production jumped 26%, putting output among the highest monthly levels in years. The rebound, alongside other Middle East exporters, shows flows have been restored despite the conflict remaining unresolved, and Iranian strikes on tankers have come in successive rounds.

More barrels are turning up in the physical market while consumption is constrained, which is narrowing price differentials and flashing early signs of a surplus. Flows are close to pre war levels, but they hinge on detours like routing crude through Saudi Arabia's East West line toward the Red Sea to avoid the Strait of Hormuz and a shuttle trade that uses ship to ship transfers.

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Diplomacy and downstream pain

Negotiations continue, but Washington and Tehran remain divided on key issues, including the US naval blockade, frozen assets, and Iran's new nuclear program. In an interview with Al Mayadeen, Mohsen Rezaee, Secretary of the Supreme National Security Council, said Iran will not remove "a single atom" of enriched nuclear material out of the country, which clashes with a core US condition for talks.

ANZ Group Holdings Ltd. analysts Brian Martin and Daniel Hynes wrote, "Supply is recovering, but it relies on workarounds rather than secure shipping lanes, so disruption risk remains." They added, "With both sides still far apart, markets will keep pricing in a geopolitical premium despite October's production recovery."

In Europe, Russian refineries were struck again by Ukrainian drones, worsening an already tight diesel market. Energy Aspects Ltd. reported that since late October, Kyiv has hit no fewer than seven processing plants, marking the end of a short lull in the attacks.

What it means for your portfolio

More supply and softer demand are squeezing grade differentials, but reliance on pipelines and ship to ship transfers keeps vulnerability high. That helps explain why prices are steady near two month lows even as physical barrels rise and geopolitical risk persists.

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