Oil prices dropped to a two-week low on Tuesday as improving supply flows from the Persian Gulf alleviated immediate scarcity fears. Brent crude futures for the November contract settled at $99.25 a barrel, down $1.09 or 1.09%, while the WTI October contract, which expired that day, finished at $94.99 a barrel, down $1.19 or 1.24%. Both benchmarks had initially fallen more than $2 a barrel before paring losses following comments from US President Donald Trump regarding the timeline for a potential peace deal with Iran.

Market Context

The decline marks a shift in sentiment from recent weeks, where markets were pricing in significant disruption to global energy supplies following the US-Israeli war on Iran that began in late February. Prior to the conflict, the Strait of Hormuz handled approximately 20% of global oil and liquefied natural gas supplies. The recent easing of pressure has been driven by tangible increases in crude movement, specifically from Saudi Arabia, which has restarted operations at its East-West Pipeline and resumed shipments through the Hormuz chokepoint.

Analysis

The primary driver behind the price drop is the physical resumption of supply routes. Data indicates that Saudi oil moving through the Strait of Hormuz averaged about 2.9 million barrels a day over the last six days, a substantial increase from roughly 700,000 barrels a day in August. Phil Flynn, senior analyst at Price Futures Group, noted that "Saudi Arabia is acting, not waiting," highlighting that Aramco loaded about 14 million barrels of crude onto seven Very Large Crude Carriers (VLCCs) inside the Gulf after Houthi attacks had previously forced a shutdown of loadings at the Yanbu port.

However, geopolitical risks remain a potent counter-force. President Trump tempered immediate hopes for de-escalation by stating that a peace deal would likely come only after the US midterm elections in early November. Furthermore, Trump warned that without a deal, he could "annihilate" Iran. Despite this hawkish rhetoric, diplomatic channels appear active; a senior Iranian official told Reuters that Iran could reopen the Strait of Hormuz within seven days if the US eases military pressure and lifts its blockade on Iranian ports, adding that the Iranian delegation at the UN General Assembly has full authority to revive diplomacy.

Key Numbers

- Brent November contract settled at $99.25/bbl, down $1.09 (-1.09%).

- WTI October contract settled at $94.99/bbl, down $1.19 (-1.24%).

- Saudi crude flows through Strait of Hormuz averaged ~2.9 million bpd over the last six days.

- Previous August average for Saudi flows through Hormuz was ~700,000 bpd.

- Aramco loaded ~14 million barrels onto seven VLCCs inside the Gulf.

- Strait of Hormuz normally handles ~20% of global oil and LNG supply.

What to Watch

Traders will monitor developments at the UN General Assembly in New York this week, where President Trump is expected to meet with world leaders. While the immediate focus is on Middle East stability, any progress in ending Russia’s 4-1/2-year-old war in Ukraine could also impact broader energy markets. Additionally, market participants should watch for the resumption of exports from the Yanbu port, which sources briefed on the matter indicated could happen as early as Tuesday. The interplay between physical supply restoration and the political timeline for a US-Iran peace deal will dictate volatility in the coming weeks.

Hamad Hussain, senior climate and commodities economist at Capital Economics, interpreted the Iranian comments as a sign that diplomatic efforts may be working, suggesting that the market may be beginning to price in a normalization of flows despite the lingering threat of military escalation.