Oil prices continued their downward trajectory on Monday, following their most significant weekly drop since April 2020. Traders are evaluating the potential for a diplomatic resolution to the US-Iran conflict, which is occurring alongside ongoing attacks throughout West Asia. Prices experienced additional downward pressure following indications from US President Donald Trump that he was unlikely to sanction new military actions against Iran, provided that negotiations aimed at resolving the conflict continued to advance. In an interview, Trump stated that further military action was “highly unlikely” to be necessary, contingent upon both sides achieving a robust agreement. Brent crude futures decreased by 1.04%, settling at $97.30 per barrel, whereas US West Texas Intermediate crude saw a decline of 58 cents, or 0.60%, reaching $90.29 per barrel. Brent experienced a temporary decline of over $1 during the session. Trump indicated that significant US military actions against Iran might be reinstated after the recent midterm elections in the United States.
However, there has been no indication of a significant military operation thus far. Iran has issued a warning that it would respond by targeting interests of the United States and Israel. The Democratic sweep in the US midterm elections seemingly reinforced traders’ expectations that the conflict would not escalate significantly, which contributed to the sharp decline in oil prices. However, tensions across the region remain elevated, with fresh attacks reported despite diplomatic efforts. Iran-backed Houthi rebels from Yemen launched an attack on Saudi Arabia’s capital, Riyadh, on Sunday, resulting in damage to the offices of state-owned oil giant Saudi Aramco. According to the Saudi Press Agency, the city successfully intercepted a new wave of ballistic and cruise missiles. The damage to Aramco’s offices was minimal, with no casualties reported. Meanwhile, Goldman Sachs has elevated its projections for oil prices, pointing to increasing risks associated with global supplies.
The investment bank cautioned that Brent crude might escalate to $140 a barrel by 2027, contingent upon oil production in the Gulf region remaining significantly below its average for 2025. Goldman Sachs has revised its December Brent crude forecast upward to $105 a barrel, a notable increase from the previous estimate of $90. Its projection for US WTI crude was also raised to $94 a barrel from $81. In an optimistic scenario, Brent may attain $140 per barrel and maintain an average of approximately $130 in 2027, contingent upon Gulf oil production remaining 3.5 million barrels per day below its 2025 average, as reported by source, referencing the bank’s forecasts.
The bank anticipates that geopolitical risks will necessitate a higher premium in oil prices, considering the potential for disruptions to Middle Eastern supplies, the historical length of significant supply shocks, and the complexities associated with attaining a sustainable diplomatic resolution. Analysts underscored the prevailing uncertainty associated with the conflict, noting the challenges in forecasting the war’s trajectory. Initially, the bank anticipated that the US administration would refrain from surpassing specific economic thresholds. However, seven months into the conflict, several of those thresholds have been breached, while a clear strategy to bring the war to an end has yet to emerge.
