Oil prices fell on Thursday as traders parsed new diplomatic activity in the Middle East against the continued prospect of military strikes and attacks on energy infrastructure that have kept markets near six-month highs.
At 01:56 ET (05:56 GMT), December Brent futures were trading at $113.73 per barrel, down 1.4%. West Texas Intermediate crude for delivery fell 1.6% to $101.19 per barrel. Both contracts had climbed in the previous session after Yemen's Iran-aligned Houthi movement said it had struck Saudi Arabia's largest oil refinery.
The market remained split between cautious optimism over possible negotiation channels and the risk that renewed hostilities could further disrupt shipments through the Strait of Hormuz - a vital artery for global crude exports.
The Wall Street Journal reported that U.S. Vice President JD Vance had contacted Mohsen Rezaei, the secretary of Iran's top security body, in a step that could help establish a negotiating channel. Separately, U.S. President Donald Trump told Axios that mediators are conducting talks, while he cautioned that he could not say whether those talks would produce results.
Qatari mediators have put a new draft proposal to Tehran intended to end the conflict. Reuters reported that an Iranian official called the ideas unacceptable. In addition to Qatari efforts, Saudi Arabia, Turkey and Pakistan all held discussions with Iranian officials in Tehran during the week.
At the same time, the United States has signaled the possibility of renewed military action. The U.S. president has raised the prospect of strikes after the Nov. 3 midterm elections, and Washington has warned regional partners to prepare for potential attacks and Iranian retaliation against energy sites.
Those threats are a key influence on oil pricing. Further attacks could jeopardize production facilities and shipping routes. Extended interruptions to traffic through the Strait of Hormuz would risk tightening global supply markedly, while assaults on Saudi infrastructure could constrain the kingdom's ability to export crude.
U.S. government inventory data provided additional, if mixed, support for prices. The Energy Information Administration reported that commercial crude stocks fell by 1.9 million barrels to 410.6 million barrels in the week ended Oct. 23, contrary to expectations for a small increase. Fuel-stock measures painted a varied picture: gasoline inventories rose by 3.9 million barrels, against forecasts of a decline, while distillate stocks - which include diesel and heating oil - declined by 1.5 million barrels.
Market participants are therefore navigating a complex signal set: diplomatic contacts and mediation efforts that could reduce escalation risk, offset by explicit warnings of possible U.S. military action and ongoing attacks on regional energy infrastructure. Until the trajectory of those diplomatic initiatives becomes clearer, uncertainty will likely continue to influence crude valuations.
Context for market watchers
- Recent Houthi strikes on Saudi energy facilities earlier helped push prices higher prior to Thursday's retreat.
- Diplomatic contacts reported by multiple sources have introduced the possibility of negotiation channels between the U.S. and Iranian security leadership.
- U.S. inventory figures show a modest draw in crude supplies but mixed signals for product demand from gasoline and distillate stock movements.