LONDON — Oil prices fell on Wednesday, November 4, in a volatile session, as investors weighed what the Democrats' capture of the United States Congress means for President Donald Trump's war on Iran — whether Washington now leans toward diplomacy or toward renewed military strikes. Brent crude futures fell $1.75 to $101.85 a barrel by 1034 GMT, having fallen $2 earlier in the session, and US West Texas Intermediate (WTI) crude fell $1.18, or 1.2 per cent, to $94.91 a barrel; both benchmarks had risen $1 earlier in the day, Reuters reported from London.

Source: Reuters via LSE

The fall reversed the morning's Asian session, when Brent had risen 76 cents, or 0.7 per cent, to $104.36 a barrel at 0730 GMT and WTI had gained 63 cents to $96.72, as traders first waited on Washington's next move in the US-Israeli war on Iran. In the previous session Brent had settled at its lowest level in nearly four weeks, as traders weighed talks to end the wars in both Ukraine and Iran.

Source: Reuters via KTWB

The Asian-session rise, driven by falling Hormuz oil flows, was reported earlier today: Oil Prices Rebound as Hormuz Flows Fall

Trump acknowledges the war's electoral cost

President Trump acknowledged that the US-Israeli war on Iran played a role in his Republican Party's sweeping defeat in Tuesday's midterm elections, in which Democrats won control of both the House of Representatives and the Senate, Reuters reported. He made the acknowledgment in an interview with The Wall Street Journal, while saying he did not regret the conflict, according to Dow Jones reporting of the interview.

Source: Reuters via LSE / Dow Jones via Morningstar

Trump's admission — and his threat to veto any move to rein in the war — was reported in full earlier: Trump Admits Iran War Hurt Republicans in the Midterms

Why traders sold the war premium

Democratic control of both chambers raises immediate questions over how an expensive war can be funded and expanded: a Congress controlled by the opposition brings more oversight and less appetite for open-ended war spending, which lowers the market's odds of a sustained supply shock, traders and analysts said. But there is no diplomatic breakthrough yet — markets remained on watch for progress in talks to end the war, as Qatar stepped up mediation efforts to avert an escalation of attacks after the US elections, and a senior Iranian official told Reuters on Tuesday that Iran and the United States remain far from a deal to end their war.

Source: Reuters via LSE

The balance of risks still runs both ways. Neil Shearing, group chief economist at Capital Economics, said renewed US strikes on Iran could push Brent crude above $120 a barrel — yaani more than $120 for every barrel — while a Democratic Congress could push President Trump to focus more on foreign policy as his domestic agenda faces greater opposition. The new Congress does not take office until January 3, leaving nearly two months for the administration to pursue further foreign-policy initiatives under the existing composition, Reuters noted.

Source: Reuters via QNC News

Background: a war, a strait and a barrel held hostage since February 28

The war began on February 28, when the United States and Israel attacked Iran. On Tuesday the US carried out what a US official described as “defensive” strikes on Iran's Qeshm Island, targeting surface-to-air missiles used against US assets, while President Trump told the Financial Times the United States had no immediate plans to strike Iran. The Strait of Hormuz — through which about one-fifth of the world's crude oil and natural gas passed before the war — remains the market's central anxiety: flows of crude, condensate and refined products from the Middle East averaged 17.1 million barrels per day in October, according to ship-tracking data from Vortexa, down from 18.9 million barrels per day in September but still roughly three-quarters of pre-war levels.

Source: Reuters via LSE / QNC News

What it means for Gulf workers and for Punjab and India

For the lakhs of Punjabi and Indian workers across the Gulf — and the Indian seafarers whose ships still run the Hormuz route — the oil price is the war's daily scoreboard. A falling Brent eases the fuel-price pressure the war has pushed onto Punjab, India and Canada alike; but the same analysts warning of $120 oil are describing the scenario those workers would live through first — renewed strikes, a tighter strait and disrupted remittances and flights. Nothing in Wednesday's price fall changes the physical risk in the Gulf; it prices a political hope in Washington, not a settlement in the strait.

Source: Reuters via LSE

What happens next

The next hard numbers land within hours: the US Energy Information Administration's official inventory report is due at 10:30 a.m. EST on Wednesday. Beyond the data, the market is waiting on two decisions — whether Washington uses the post-midterm window for diplomacy through Qatar's mediation or for the renewed strikes US officials have prepared options for, and whether Tehran's seven conditions for reopening the Strait of Hormuz get the “convincing” US response Iran's security chief Mohsen Rezaei said on Tuesday they have not yet received. Until one of those decisions lands, Brent stays trapped between $101 and $120 — the price of a war whose politics just changed, and whose ending has not.

Source: Reuters via LSE