Brent Crude Falls 8.7% to $94.62 After Democrats Win Congress, Then Edges Back Up

Oil took the midterm results as a signal that the Iran war might wind down. Brent futures settled at $94.62 a barrel on Wednesday, Nov. 4, down 8.7%, a day after Democrats took both chambers of Congress.

The relief did not hold for long. On Thursday, Nov. 5, Brent was trading at $96.88 around 11 a.m. ET, up about 2.4%.

For perspective, Brent closed near $72 on Feb. 27, the day before the U.S.-Iran war began. Even after the drop, crude remains well above that level.

Why the market moved

Warren Patterson and Ewa Manthey of ING said in a Nov. 5 note that the Democratic win raised hopes of a quicker end to the conflict. They expect lawmakers to scrutinize the war more closely and say funding it could become harder.

They also flagged the catch. The new Congress is not seated until January, which leaves room for escalation before then. Absent escalation, they said, the market is likely to keep giving back the risk premium it built up in recent months, and the selloff appeared overdone.

Giovanni Staunovo, a commodity analyst at UBS, said Thursday's modest recovery reflected the unresolved situation in the Middle East. June Goh of Sparta Commodities said more volatility is likely because the path to a diplomatic end remains uncertain and global strategic reserves have been drawn very thin.

The political fallout

Vice President JD Vance, who had long been skeptical of the war, said on X: "The reason we lost is the war." President Donald Trump told reporters Vance's assessment was largely true because the war drove up gasoline prices, according to the Epoch Times.

House Minority Leader Hakeem Jeffries wrote colleagues in a Nov. 4 letter that House Democrats must act in their first 100 days in the majority to stop the war.

How much power that gives Democrats is another matter. Reuters columnist Clyde Russell wrote this week that Congress can redirect, cut or boost spending and open investigations into Trump and his allies. That is leverage over money and oversight, not control over military decisions.

Pressure is also building on Secretary of Defense Pete Hegseth. Retiring Sen. Thom Tillis (R-N.C.) said Tuesday night that Hegseth would soon face "a reckoning." Outgoing Rep. Thomas Massie (R-Ky.) filed articles of impeachment against him in September.

Pump prices and the strain on Asia

The AAA national average for regular gasoline was $4.10 a gallon on Nov. 5, down more than two cents from the day before. A year ago it was almost $3.08. Diesel averaged $6.29 for the week ending Nov. 2, according to the Federal Reserve Bank of St. Louis.

Patrick De Haan, head of petroleum analysis at GasBuddy, said the national average gasoline price could fall to $3.65 and diesel to $5.50 in the weeks ahead, based on the Nov. 4 close. He said retail prices would begin reflecting the steep wholesale losses on Nov. 5 and 6.

Asia has taken the hardest hit because it relies more on oil and liquefied natural gas from the Persian Gulf than any other part of the world. The World Bank warned last month that subsidies were the most common response among emerging and developing economies. It said countries with substantial subsidies saw smaller increases in retail gasoline prices, but that the relationship weakened considerably for headline inflation.

Joshua Kurlantzick of the Council on Foreign Relations wrote that Asian leaders have said little publicly about the midterms, but many are privately relieved. He said they hope Trump's decision-making on Iran becomes more predictable and that he might wind the war down faster. He also wrote that they cannot take that for granted, noting that Trump said even after the election that he did not regret launching the conflict and would have "done it again."

OilPrice.com was more skeptical, writing that Asia's hopes may be premature because Trump is still president and Democrats are no fans of Iran. It added that Iran remains unconvinced it could reach a lasting peace with the United States.

Hormuz and Europe

The physical bottleneck has not cleared. S&P Global said vessel traffic through the Strait of Hormuz edged up in October to its highest monthly level since July. Crude tanker movements fell, and security incidents continued.

The strait used to carry around 20% of global liquefied natural gas. Disruptions have curbed exports from Qatar and the United Arab Emirates, most of which were bound for Asia, and intensified competition between European and Asian buyers ahead of winter.

The Dutch TTF front-month gas contract, Europe's benchmark, gained 1.2% to 92.59 euros a megawatt-hour in early trading Wednesday. It had climbed above 100 euros last week, its highest since late December 2022, before pulling back on hopes of a diplomatic breakthrough. Florence Schmit, senior energy strategist at Rabobank, said it remains uncertain when and if a new attack would happen, noting Russia-Ukraine peace talks are planned in Abu Dhabi on Nov. 10-11.

Stocks

U.S. equities rallied Wednesday. The Dow surged more than 1,500 points, the S&P 500 rose 1.6% and the Nasdaq rose 1.4%.

Asian markets were mixed Thursday. Hong Kong's Hang Seng jumped 2.8% and Australia's S&P/ASX 200 rose 1.9%. South Korea's Kospi was down 3.5% by late morning as chipmakers sold off, with Samsung Electronics down 5.7% and SK Hynix down 7.4%.

What comes next

The Nov. 10-11 Abu Dhabi talks are the next scheduled diplomatic event mentioned by analysts. The new Congress does not take office until January, which leaves the administration room to pursue its existing approach toward Iran in the coming weeks. Until then, the question of renewed strikes or negotiations with Iran rests with the Trump administration.