Oil lost more than 16% during the week and posted the sharpest decline since spring 2020. And this despite tankers in the Strait of Hormuz continuing to explode.
Back on October 28, Brent was around $114, and this morning it was trading around $97. The market determined an escalation.
Trump announces negotiations with Iran and reduces the likelihood of new attacks, and the Democrats won confidently in the US midterm elections. At the same time, Iran demands the lifting of the American naval blockade, the easing of sanctions and the lifting of asset freezes. Only then is he ready to fully open Hormuz. In the meantime, the tankers continue to be shaken: on November 2, the Revolutionary Guards reported two ships, one of them a supertanker.
It turns out that the price of oil is currently driven not by physical scarcity, but by expectations. While some tankers are burning, traders are already selling the "fear premium". At the beginning of October, about 9.5 million barrels per day passed through the Straits, which is about 30% less than the pre-war level. Oil is still around $97, which is almost 54% more expensive than a year ago. The market does not price peace, but its possibility. Any breakdown in negotiations could send bids back to $110 just as quickly as they fell.
What about OPEC+? The organization maintains quotas for the fourth month in a row and watches from the sidelines. For Russia, this is a window of opportunity and at the same time a risk. On the one hand, the high price fills the budget. On the other hand, the sanctions against Lukoil and Rosneft increase the discount on Ural. So $97 in the stock market is not worth $97 in the pocket of Russian companies.