Oil prices extended a sharp two-day decline on Tuesday, settling at the lowest levels since late August as traders bet that tensions between the U.S. and Iran are easing and that Middle East supply is recovering.
West Texas Intermediate crude for December delivery fell 0.93% to settle at $86.04 a barrel, and Brent crude, the global benchmark, dropped 1.17% to $91.49, according to Eurasia Business News and FinanceFeeds, citing Kitco and CNBC. Brent briefly traded below $90 on Tuesday for the first time since August, according to Oilprice.com and FinanceFeeds.
Two days, a big move
Tuesday’s losses followed a steep drop on Monday, when WTI fell 4.38% to $86.85 and Brent slid 5.85% to $92.57, according to 24/7 Wall St. Both benchmarks settled at their lowest since Aug. 31.
The main driver has been hope for de-escalation. 24/7 Wall St. reported that President Trump described the Iran war as effectively over in military terms, while saying the U.S. would maintain its naval blockade of Iranian ports. No ceasefire has been signed, and Secretary of State Marco Rubio said a breakthrough was not imminent, the outlet reported.
Supply is returning
Physical supply is also improving. Crude flows through the Strait of Hormuz have largely recovered, according to FinanceFeeds, citing Oilprice.com, and China’s October crude imports rose as Saudi and Iraqi shipments picked up, Oilprice.com reported. OPEC output rose by 1.38 million barrels per day to 22.87 million, according to 24/7 Wall St. Risks remain: Oilprice.com said Iranian drones and missiles have struck at least 16 tankers in Hormuz so far this month.
Inventory data added pressure. The American Petroleum Institute reported a 9.0 million barrel increase in U.S. crude stocks for the week ended Nov. 6, while analysts had expected a 1.0 million barrel drop, according to TipRanks. Early Wednesday, WTI was down 0.40% at $86.50 and Brent was down 0.64% at $91.98, TipRanks reported. Official government inventory data from the Energy Information Administration is expected Thursday, shifted by the Veterans Day holiday, according to the Vanderbilt Report.
Relief at the pump
For consumers, the decline is starting to show up at gas stations. The U.S. average price of gasoline dipped below $4 a gallon for the first time since July, according to Oilprice.com, which cited AAA data showing regular gasoline averaged about $3.98 on Tuesday. Prices remain roughly 19% above seasonal norms, and diesel averaged $6.15 a gallon, the outlet said.
What it means for inflation
Lower energy prices could eventually help cool inflation, which ran hotter than expected in October with consumer prices up 0.4% for the month. But the Federal Reserve is focused on core inflation, which excludes food and energy and rose 0.3% for a third straight month. Traders still expect a December rate hike. Falling oil may ease pressure on household budgets, but it is unlikely on its own to change the Fed’s near-term path.
