Oil has its biggest weekly fall since the pandemic on a US-Iran deal that nobody has signed

The war premium is draining out of oil, and it is happening before the war has ended.

Brent crude, the global benchmark that sets the price of most of the fuel Australia imports, settled at US$98.32 a barrel on Friday in New York, up just 3 US cents on the day but about 16% lower than a week earlier. West Texas Intermediate settled at US$90.83, down almost 13% for the week.

It was Brent’s steepest weekly percentage fall since the pandemic began in 2020, and by market data going back to 1988, its largest weekly fall in dollar terms.

Why did oil fall so far, so fast?

The trigger was the US midterm elections. When Democrats won both chambers of Congress, traders read it as pressure on Washington to settle the conflict with Iran, and oil fell 8% on Wednesday alone to a two-month low.

Signals from diplomats added to the bet. Iran has reportedly sent proposals through Qatar seeking an end to the US naval blockade, sanctions relief and access to frozen assets. But no agreement has been announced, and on Friday President Donald Trump said he would soon decide whether to pursue a peace deal or destroy what remains of Iran.

“A bit of unwinding of the war premium seems to be what’s going on,” said Phil Flynn, senior analyst at Price Futures Group.

Is the oil actually flowing again?

Not yet. Britain’s maritime security agency UKMTO says attacks on oil-carrying ships are still running close to a record pace. A seafarer was killed in a 5 November explosion on an oil products tanker in the Gulf, believed to have been a missile strike, a Greek ship manager said.

What has changed is the market underneath. Spot premiums for Middle Eastern crude have returned to pre-conflict levels, and Saudi Aramco has cut its December prices for Asian buyers, with its main Arab Light grade at a US$7 discount to the regional benchmark. Janiv Shah, an oil market analyst at Rystad Energy, said the crude market is “loosening to a state of oversupply” as shippers find ways around Hormuz with longer routes and ship-to-ship transfers.

What does it mean at the bowser?

For Australian drivers, a drop of this size is the kind of move that eventually shows up on the price board. Australia imports most of its refined fuel from Asian refineries that price off global benchmarks, and moves in international prices usually take a week or two to reach petrol stations.

The catch is that the fall rests on a bet, not a deal. If the talks stall or another tanker goes up in flames, the premium could return quickly, and prices at the pump would follow.

Where do interest rates fit in?

A stronger-than-expected US jobs report on Friday showed 165,000 jobs added in October, well above forecasts, and markets now see a strong chance the US Federal Reserve raises rates in December. Higher rates cool demand for fuel, which is another weight on oil. “We’re worried about the Federal Reserve raising interest rates after the jobs report,” said John Kilduff of Again Capital.