Crude oil prices hit 11-day low: Why are oil prices falling despite Middle East tensions?

Oil prices fell to their lowest level in 11 days on Monday as markets weighed the possibility of diplomatic progress between the United States and Iran against continuing tensions in West Asia.

Brent crude futures touched their lowest level since September 10 before recovering slightly. The November Brent contract was trading at around $101.20 a barrel, down $2.66, or 2.6 per cent. US West Texas Intermediate crude fell $2.50, or 2.5 per cent, to $97.80 a barrel.

Hopes of US-Iran diplomacy weigh on prices

A key factor behind the decline is the possibility of renewed diplomatic engagement between Washington and Tehran. US President Donald Trump has said he would be open to meeting Iranian President Masoud Pezeshkian, who is expected to be in New York for the United Nations General Assembly this week.

Iran has also conveyed conditions for re-engaging in negotiations through mediators, according to reports.

Any progress towards talks could reduce fears of a prolonged disruption to oil supplies from the region and ease the geopolitical risk premium embedded in crude prices.

Saudi exports offer another relief

Markets are also watching Saudi Arabia’s efforts to reroute crude shipments after attacks disrupted parts of its East-West pipeline network.

Saudi Aramco has increased shipments through the Strait of Hormuz after halting some exports through Yanbu. Data cited by JPMorgan analysts showed Saudi oil flows through the strategic waterway averaged about 2.9 million barrels per day over the six days to September 18, sharply higher than around 700,000 bpd in August.

More from Business

The increase suggests that Saudi Arabia is finding alternative routes to keep exports moving despite attacks on its energy infrastructure.

West Asia risks have not disappeared

The decline in oil prices does not mean supply risks have vanished. Yemen’s Iran-backed Houthis said they had attacked targets in Riyadh and a Saudi Aramco facility in Yanbu.

The attacks come after strikes on Saudi Arabia’s East-West pipeline, which carries crude from the country’s eastern oil fields towards the Red Sea.

The wider conflict therefore remains a major source of uncertainty for global oil markets. However, stronger Saudi exports and hopes of US-Iran talks have temporarily eased concerns about a deeper supply shock.

For oil markets, the next major trigger will be whether diplomatic efforts produce tangible progress while Saudi Arabia and other regional producers maintain crude flows.