Oil prices rebounded on Thursday (November 5) following an earlier drop of more than 8%, triggered by the Democratic Party's gains in the US midterm elections. Brent crude rose 3.9% to US$98.29 per barrel, while West Texas Intermediate (WTI) climbed 2.7% to US$90.52 per barrel. This rebound occurred as investors reassessed the outlook for US-Iran relations and the potential recovery of oil supplies from the Middle East.
The Democratic Party's success in securing control of Congress has fueled expectations that President Donald Trump will face greater political pressure to pursue a diplomatic resolution to the conflict with Iran. Previously, this prospect had sparked a sharp sell-off, as the market anticipated an end to the conflict and the restoration of oil flows from the Middle East.
Nevertheless, uncertainty persists, as the new Congress will not take office until January 3. This leaves a window of time for the Trump administration to make decisions regarding the conflict before the shift in the composition of Congress takes effect. The risk of renewed escalation remains a concern for market participants.
Meanwhile, the price premium for near-term oil deliveries has begun to narrow. The spread between the nearest-term Brent contracts has fallen to below US$2.50 per barrel, down from over US$5 in mid-October. This trend suggests that concerns regarding near-term supply shortages are easing, in line with growing hopes for a resolution to the conflict.
Oil supplies from the Middle East are also showing signs of recovery. JPMorgan estimates that the global oil market returned to a surplus of 1.1 million barrels per day in September, with that figure widening to 1.4 million barrels per day in October. Middle Eastern oil exports rose to approximately 20.7 million barrels per day in October—a significant increase from the low of 9.8 million barrels per day recorded in March. Although supplies are beginning to recover, shipping routes through the Strait of Hormuz continue to face security risks and high freight costs. These conditions have prevented the flow of energy from returning to a fully normal state. Furthermore, U.S. crude oil inventories fell by 865,000 barrels to 409.8 million barrels last week, while stocks of distillate products dropped by 3.6 million barrels to 99.3 million barrels.