Oil prices slipped on Monday after rallying to near six-month highs last week, as traders weighed the possibility of renewed US military action against Iran against signs of diplomatic efforts to ease tensions. Technical indicators also pointed to an overbought market, prompting expectations of a possible pullback.
Brent crude fell below $116 a barrel, while US benchmark West Texas Intermediate (WTI) traded near $102. The decline followed a strong rally driven by concerns over potential disruptions to Middle Eastern energy supplies. Brent has risen by around 90% this year amid the conflict.
More recent market data on Monday showed Brent trading around $115 a barrel and WTI near $101, with hopes of easing hostilities contributing to the retreat from last week's highs. Qatar has also sent mediators to Tehran as part of efforts to reduce regional tensions, although attacks on Saudi Arabia have continued to fuel concerns over supply security.
Trump signals decision on Iran as Tehran warns against escalation
The latest price movement came as Washington and Tehran continued to exchange sharp statements over the conflict. US President Donald Trump told Fox News that it was “getting to be decision time” on whether to reach a deal with Iran or “finish it off”.
Iranian Foreign Minister Abbas Araghchi, meanwhile, said the United States would not be attacked if rationality prevailed.
Washington has ordered a wider evacuation of diplomatic personnel from across the Middle East in recent days. Trump has also suggested that US forces could resume strikes against Iran after the US midterm elections on November 3.
Iran is preparing to retaliate, including against Israel and the United Arab Emirates, according to a person familiar with the Islamic Republic's thinking.
The United States and Israel launched the war with an attack in late February, saying their objective was to end Iran's nuclear ambitions. Israeli Prime Minister Benjamin Netanyahu, who has received Trump's endorsement in the election, said in a campaign video released on Saturday that Tehran was renewing its nuclear programme.
Technical indicators point to a possible pullback
Market indicators provided another reason for the latest decline. Brent's 14-day relative strength index (RSI), which measures the pace and magnitude of price movements, rose above 74 on Friday.
Some traders regard an RSI reading above 70 as a sign that an asset is overbought, potentially indicating that prices could retreat after a sharp rally.
However, the technical signal comes against a backdrop of persistent geopolitical risks. Investors remain concerned that further escalation could disrupt crude oil and refined-product supplies, particularly if attacks intensify around major energy infrastructure and shipping routes.
Houthi attacks raise concerns over Middle East energy supplies
Fighting between Iran-backed Houthi rebels in Yemen and Saudi Arabia intensified over the weekend, adding to concerns about the security of regional energy flows.
The Houthis claimed they had targeted King Khalid International Airport in Riyadh in response to Saudi attacks on Sanaa and other areas of Yemen on Saturday. Recent Houthi attacks on Saudi infrastructure have added to fears that the conflict could spread further across the region.
Commonwealth Bank of Australia analyst Vivek Dhar said the escalation and the possibility of further fighting meant oil markets needed to account for the risk of falling crude and refined-product inventories.
“We see Brent oil futures needing to rise as high as $150 a barrel to compel uncontrolled demand destruction, where high prices force lower demand, in emerging Asian economies,” Dhar said in a note.
The possibility of further military action after the US midterm elections is also influencing market sentiment. Jorge Leon, head of geopolitical analysis at Rystad Energy AS, said traders were factoring in the risk that Washington could feel less constrained by the immediate political cost of higher oil prices once the elections were over.
“The market is pricing in some risk of escalation after the US midterm elections, when Washington may feel less constrained by the immediate political cost of higher oil prices,” Leon said. “That risk could keep prices elevated even if flows improve.”
Oil shipments recover as Strait of Hormuz remains in focus
Despite the continuing conflict and reported Iranian attacks on vessels, crude shipments from the Middle East have recovered to near prewar levels, including through the Strait of Hormuz.
The narrow waterway connects the Persian Gulf to global markets and has remained at the centre of concerns over the security of international energy supplies. Any renewed disruption to shipping through the strait could affect crude and refined-product flows, potentially pushing prices higher.
Investors are also monitoring several major political and economic events that could influence markets. Israeli elections are due on Tuesday, followed by the US midterm elections in early November. Between the two, the Federal Reserve is scheduled to set monetary policy.
With diplomatic efforts offering some hope of easing tensions but military escalation still a possibility, oil markets remain sensitive to developments across the Middle East. The direction of prices will depend on whether regional hostilities intensify, shipping flows remain stable and Washington and Tehran make progress towards a deal.