Key Points
- Brent crude oil rebounded after a 7.6% plunge on Monday
- U.S. strikes against Geshem Island reignite supply concerns
- Despite mediation efforts, there are still uncertainties in Iran's peace negotiations.
After the United States attacked Iran's Geshem Island near the Strait of Hormuz, oil prices rebounded on November 3. Less than 24 hours prior, crude oil had just experienced the steepest decline in months, and concerns about further supply disruptions once again rose in the market.
As of 10:43 Greenwich Mean Time, Brent crude oil futures rose by 1.3% to $106.13 per barrel; West Texas Intermediate crude oil ( WTI ) rose by 1.5% to $97.91.
This rebound occurred after Brent crude oil fell by 7.63% on Monday. Previously, optimism surrounding peace talks with Iran triggered a sharp reversal in oil prices, and this upward trend dominated the market performance in October.
Oil prices rebound after the US attack on Iran's Geshem Island
U.S. officials confirmed that strikes were carried out against targets on the island of Geshem, describing this action as defensive in nature, with the aim of preventing attacks on commercial shipping.
Qeshm Island is located near the Strait of Hormuz, a waterway of strategic importance that has historically carried about one-fifth of the world's trade in oil and liquefied natural gas.
Military operations in that region could threaten shipping safety, potentially drive up transportation costs, and disrupt energy exports.
The latest round of upgrades occurred after several previous attacks on oil tankers and threats to infrastructure in the Gulf, events that had previously pushed Brent crude oil prices above $116.
However, these attacks do not necessarily mean that there has been a physical loss of additional oil production or export capacity.
On the contrary, traders seem to be re-including the geopolitical risk premium that disappeared during Monday's sell-off.
This distinction is very important, as JPMorgan Chase previously estimated that when the price of Brent crude oil was significantly higher than its fundamental value of $94 in its model, there was a considerable geopolitical risk premium in the market.
Uncertainty added to Iran's peace talks
The sharp drop on Monday occurred after diplomatic discussions involving Iranian officials and Qatari mediators, during which there was a brief expectation in the market that the conflict might develop towards a negotiated resolution.
However, a senior Iranian official told Reuters that Washington and Tehran are still far from reaching an agreement, and thus this hope has diminished.
This official also stated that Iran will reject what they consider to be the excessive demands of the United States.
The latest developments have reversed the optimistic sentiment that underpinned the selling pressure on November 2nd.
Nevertheless, Qatar continues to mediate, which means that the possibility of further negotiations still exists.
Since even limited progress could reduce market expectations of long-term supply disruptions, the oil market remains highly sensitive to diplomatic news.
The risks associated with the Strait of Hormuz continue to cause volatility in the oil market.
Persistent shipping restrictions have exacerbated the complexity of global energy supply, while OPEC+'s decision to maintain its December production targets also limits the possibility of further coordinated increases in production.
After reports that Saudi refineries are facing threats and that the United States' emergency oil reserves are exceptionally low, concerns about supply have further intensified.
If the situation further escalates, Brent crude oil prices could rise to $110; if there is new progress in diplomacy, oil prices might return to around the closing price of $104.77 per barrel from Monday.
