Oil drops to lowest since mid-October as hopes rise for Iran war talks

Oil prices slumped on Monday, 2 November, as renewed hopes of progress towards ending the Iran war brought relief to financial markets. Brent crude, the international oil benchmark, fell more than 6.5% to a low of $105.55 a barrel, its weakest level since 16 October.

The decline followed Tehran’s disclosure that contacts with the US were continuing in an effort to end the eight-month conflict. Iranian foreign minister Abbas Araghchi said negotiations through intermediaries were intensive and that Iran had put forward its conditions and proposals. According to the state media outlet IRNA, he said the outcome depended on Washington’s political rationality.

Diplomatic efforts over the weekend included an attempt by Qatari officials to arrange the release of more than $6bn, equivalent to £4.5bn, in Iranian assets. The effort was aimed at encouraging Tehran to permit the reopening of the strait of Hormuz, providing another potential route towards progress in the talks.

Investors also welcomed reports on Monday that Iran’s supreme leader, Mojtaba Khamenei, had given his government additional authority in negotiations with the US. The reports helped improve market sentiment despite a more confrontational message from Donald Trump a day earlier, when he threatened further action unless there was progress.

Speaking at a campaign rally in Iowa on Sunday ahead of the US midterm elections, Trump said he wanted to save lives but warned that Iran could face “the hammer”. His comments contrasted with the diplomatic developments that encouraged investors as trading got under way on Monday.

Chris Beauchamp, chief market analyst at investment and trading platform IG, described the news as “manna from heaven for stock markets”. He said rising oil prices had increasingly weighed on shares, while cautioning that Trump could still opt for further military action after the midterm elections.

The retreat in crude prices raised hopes that inflationary pressures affecting the global economy might ease. Government borrowing costs fell, with the yield on 10-year UK bonds declining by 10 basis points, equivalent to 0.1 percentage point, to its lowest level since 22 September.

Airline stocks advanced alongside the fall in oil. In London, shares in IAG, the parent company of British Airways, gained 4.2%. United Airlines shares climbed 7% in New York.