Oil Price Falls as Diplomatic Talks Raise Hopes of Easing Tensions in the Middle East

Oil prices declined on Thursday as investors weighed new diplomatic efforts aimed at halting the conflict in the Middle East. However, the risk of possible new US military strikes on Iran and attacks on Saudi Arabia's energy infrastructure continued to limit the downward pressure on prices.

As of 10:17 AM (ET), Brent crude futures fell 1% to $114.19 per barrel, while American WTI dropped 1.8% to $100.95 per barrel. Both benchmarks had risen in the previous trading session after Iran-linked Yemeni Houthis claimed to have attacked Saudi Arabia's largest oil refinery.

The market continues to fluctuate between hopes of diplomatic progress and fears of further escalation of the conflict. Particular concern is being raised over the threat of disrupted oil supplies through the Strait of Hormuz, as this maritime corridor is critically important for global energy supply.

According to The Wall Street Journal, US Vice President JD Vance has been in contact with Mohsen Rezaei, Secretary of Iran's Supreme National Security Council. This step could help establish a channel for negotiations between the parties. Donald Trump, meanwhile, told Axios that negotiations are proceeding through intermediaries, though there is no guarantee of a successful outcome.

In addition, Qatari mediators presented Tehran with a new proposal to end the conflict, though according to Reuters, an Iranian official deemed the proposed terms unacceptable. Saudi Arabia, Turkey, and Pakistan have also held talks with Iranian representatives.

Alongside the diplomatic efforts, the threat of military escalation remains high. According to reports, Trump is considering the possibility of a short, intense military operation against Iran following the November 3 midterm elections. Washington has also called on regional allies to prepare for possible strikes and Iranian retaliation.

Analysts believe new attacks could pose additional risks to oil production and exports. A renewed escalation in the Strait of Hormuz could disrupt the oil flows that have recently been restored, while strikes on Saudi Arabia's infrastructure could limit the country's export capacity. According to ING analysts, the market outlook remains grim amid the possibility of new US strikes.

US inventory data also affected oil prices. According to the Energy Information Administration (EIA), US commercial crude oil inventories fell by 1.9 million barrels in the week ending October 23, reaching 410.6 million barrels, whereas analysts had expected a slight increase.

During the same period, gasoline inventories rose by 3.9 million barrels, despite expectations of a decline. Distillate inventories, which include diesel and heating oil, fell by 1.5 million barrels.