Brent crude futures for January delivery, the global oil benchmark, fell 8.3% to settle at $95.01 a barrel. Meanwhile, U.S. West Texas Intermediate (WTI) crude futures for December delivery dropped 8.4% to close at $88.04 a barrel.
The sharp decline came as investors weighed the possibility of reduced geopolitical tensions and a potential diplomatic breakthrough between Washington and Tehran.
"The conditions for a year-end rally have strengthened considerably today, as the uncertainty around the midterm election is pushed to the back burner while geopolitical relief is right in front of us," said José Torres, senior economist at Interactive Brokers.
"Sinking crude is a real-time indicator of future cost forces, and should West Texas Intermediate sink back to the 60s, as it did in early July, then we’ll arrive at the ballpark of the Fed’s 2% target and flip 2027’s expected hikes to cuts," he added.
Democrats secured majorities in both the House of Representatives and the Senate, dealing a political setback to Trump for the remainder of his second term. The election outcome could complicate the administration's policy agenda, although investors remained focused on whether Washington would pursue further military action against Iran or seek a diplomatic resolution.
Earlier this week, the United States carried out what officials described as defensive strikes against Iranian air defence installations on Qeshm Island, near the Strait of Hormuz. Trump subsequently said Washington had no immediate plans for additional strikes.
Meanwhile, Tehran and Washington are reviewing fresh proposals from mediators aimed at bridging their differences and preventing a return to all-out war, Bloomberg News reported, citing a diplomat briefed on the matter.
However, Iran described the U.S. response to its conditions for reopening the Strait of Hormuz as unsatisfactory. Qatar has intensified its mediation efforts, with both sides continuing to exchange proposals. A senior Iranian official told Reuters that the two countries remained far from reaching an agreement.
The Strait of Hormuz continues to be a major concern for global oil markets, as any disruption to shipping through the strategic waterway could constrain crude supplies worldwide. Adding to these concerns, another oil tanker was attacked in the Strait of Hormuz, raising fresh questions about the security of energy shipments in the region.
The sharp fall in crude prices reflects changing market expectations surrounding the conflict, diplomatic negotiations and the potential impact on global energy supplies. Whether the ongoing mediation efforts can prevent further escalation remains a key factor for oil markets.
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