Oil Settles More Than 7% Lower as Trump and Iran Signal Openness to a Deal Before Midterms

Eight months after the U.S. and Israel first struck Iran on Feb. 28, oil had its worst day in three months on Monday, Nov. 2, as Washington and Tehran both talked up a diplomatic exit.

U.S. West Texas Intermediate futures fell 7.4% to settle at $96.46 a barrel, the biggest one-day loss since July 27. Brent, the international benchmark, lost 7.6% to close at $104.77.

Brent had climbed to nearly $118 last week. Crude gained more than 10% in October as traders priced in a major escalation after Tuesday's midterm elections.

What moved the market

Trump told reporters Monday that Iran wants to "make a deal and that could happen." Secretary of State Marco Rubio said over the weekend that the president would rather not use force and wants to settle the conflict diplomatically.

Rubio also said Trump "hasn't made a decision" on striking Iran again. "What the president expresses to you is incredible confidence that if we needed to do something militarily, we would have the ability to do it," he said. "But we would prefer to do it peacefully."

Axios reported that Trump told Israeli Prime Minister Benjamin Netanyahu he wants to give diplomacy more time before resuming strikes. Trump has previously said he will not attack Iran before the midterms.

In-person talks mediated by Qatar took place over the weekend. Iranian Foreign Minister Abbas Araghchi said progress is being made.

What Iran says it wants

Iran's state news agency IRNA quoted President Masoud Pezeshkian saying Tehran is seeking to resolve problems through dialogue. He said Supreme Leader Ayatollah Mojtaba Khamenei has given the government certain authorities to do that.

Araghchi said a deal is possible if Washington "demonstrates goodwill" and is "truly seeking a peaceful solution." He said mediators are discussing the proposal Iran put forward at the UN General Assembly in September.

The terms are steep. Tehran expects the U.S. to lift sanctions, pull its military presence in the region back to previous levels and end the blockade, Araghchi said.

The hard line has not softened either. On Saturday, Khamenei told Iran's armed forces to meet "any level or type of threat" with "an immediate, impactful, and geographically unrestricted response."

Skepticism on the trading floor

The oil market has sold off on settlement rumors before, only to see the war escalate and prices spike again.

Ryan McKay, director of commodity strategy at TD Securities, said much of the recent run-up was risk premium tied to a possible escalation, so diplomacy headlines move prices hard. But he added: "so long as there is no concrete conclusion to the war, and tanker and Houthi attacks remain prevalent, we do not anticipate a complete erosion of the risk premium via diplomacy headlines alone."

Kathleen Brooks, research director at XTB, tied the outlook to Tuesday's vote. "If the Democrats win Congress tomorrow, this could hasten a resolution to the conflict which may push the price of oil below 100 dollars per barrel," she said.

Pump prices

The national average for regular gasoline was $4.17 a gallon on Monday, according to AAA. That is down 12 cents from a week ago and 23 cents from a month ago.

It is still well above the $3.04 of a year ago and the $2.98 on Feb. 28, when the war began. Diesel averages $6.29, off 6 cents on the week and below its $6.53 peak.

Patrick De Haan, head of petroleum analysis at GasBuddy, said wholesale gasoline and diesel point to a decline of roughly 16 cents a gallon. "The national average could fall under $4 a gallon in the next week barring a course change," he said.

A Financial Times analysis of federal data found that the average gasoline price over Trump's second term would pass $3.46 on Monday. The analysis said that exceeds the previous record for a presidential administration, set under Joe Biden.

The White House put the blame on Iran. Spokesperson Taylor Rogers told Al Jazeera: "Once this conflict comes to an end, gas prices will drop drastically, and the Iranian terrorist regime will not have a nuclear weapon."

Cost of living is a top voter concern. An AP-NORC poll last month found that 78% of Republicans and 89% of Democrats want Congress to prioritize it.

What comes next

US stock futures rose Monday morning as crude fell. The S&P 500 fell 1.8% and the Nasdaq 100 fell 3.5% on Friday, their worst days since June. Goldman Sachs raised its year-end Brent forecast to $105 from $90.

The next test is Tuesday. Polls open on Nov. 3 with Trump's pre-election pledge not to strike Iran about to expire, and Rubio has said the president has not decided what comes after. Whether Monday's drop holds depends on whether that decision comes out as talks or strikes.