Oil prices retreated from six-month highs on Monday (October 26) after senior officials from Saudi Arabia, Pakistan, and Turkey met with Iranian leaders in Tehran to advocate for a return to diplomacy. Brent crude for December delivery fell 0.8% to US$115.81 per barrel, while West Texas Intermediate (WTI) declined 1.5% to US$101.76 per barrel.
Iranian President Masoud Pezeshkian stated that Tehran is prepared to support understandings that strengthen regional unity, while reiterating that Iran is not seeking nuclear weapons. This development is viewed as a positive signal, as it opens the door for de-escalation and reduces the risk of energy supply disruptions from the Middle East.
Nevertheless, downward pressure on oil prices remains limited. Houthi attacks on Saudi Arabia, the activities of Iranian-backed groups, and the potential for new conflicts following the U.S. elections continue to sustain a geopolitical risk premium. The market is also closely monitoring elections in Israel and the U.S. midterm elections, both of which could influence Washington’s policy toward Iran.
From a technical perspective, the correction in oil prices was also driven by "overbought" conditions, following a breach of the 70-level on the Brent Relative Strength Index (RSI) last week. This suggests that prices had risen too rapidly, creating room for profit-taking—even though the underlying geopolitical fundamentals remain supportive.
Meanwhile, oil flows through the Strait of Hormuz have reportedly returned to near pre-war levels. However, the market continues to account for the risk of escalation following the U.S. elections, as Washington may gain greater political latitude to take action against Iran without being as constrained by the immediate impact on energy prices.
Newsmaker Analysis: The current correction in oil prices primarily reflects a easing of short-term risks and profit-taking, rather than a disappearance of bullish fundamentals. As long as the conflict in the Middle East remains unresolved, oil prices will continue to carry a significant geopolitical risk premium. Should diplomatic efforts yield concrete agreements, however, downward pressure on prices could persist. Conversely, fresh attacks on energy infrastructure or an escalation between the US and Iran could potentially push Brent back toward US$120 per barrel