Crude oil prices fell sharply on Monday as the presidents of the United States and Iran signaled they are open to a diplomatic solution to the conflict that has roiled energy markets for eight months. Brent crude futures, the international benchmark, lost 7.6% to close at $104.77 a barrel. US West Texas Intermediate lost 7.3% to close at $96.46 a barrel. President Donald Trump told reporters Monday that Iran wants to “make a deal and that could happen.” US Secretary of State Marco Rubio said over the weekend that Trump prefers not to use military force against Iran and would like to resolve the conflict diplomatically. Trump has previously said he will not attack Iran before the US midterm elections. But the oil market had priced in the risk of a major military escalation after the election, gaining more than 10% in October. The oil market sold off during the earlier phases of the war due to rumors of a possible deal, only for the conflict to subsequently escalate and drive prices up again. Brent Trump “has not made a decision” on whether to attack Iran again, Rubio told reporters. “What the president expresses to you is incredible confidence that if we needed to do something militarily, we would have the ability to do it,” the secretary of state said. “But we would prefer to do it peacefully.” Iran’s President Masoud Pezeshkian said Tehran is trying to resolve problems through dialogue, according to the Islamic Republic’s state news agency. Iran’s Supreme Leader Ayatollah Mojtaba Khamenei has granted the government certain authorities to do this, Pezeshkian said. Iran’s Foreign Minister Abbas Araghchi said a deal with the United States is possible if Washington “demonstrates goodwill” and is “truly seeking a peaceful solution,” according to IRNA. Araghchi said mediators are discussing the proposal Iran made during the United Nations General Assembly in September. Tehran expects the United States to lift sanctions, reduce its military presence in the region to previous levels and lift the blockade, the foreign minister said. But Khamenei on Saturday called on Tehran’s armed forces to confront “any level or type of threat” with “an immediate, impactful response without geographical restrictions.” Reports of the diplomatic efforts will have a big impact on crude oil prices because much of the market’s recent gains were risk premiums in anticipation of a possible escalation, according to Ryan McKay, director of commodities strategy at TD Securities. “That said, as long as there is no concrete conclusion to the war and attacks on oil tankers and Houthis remain frequent, we do not anticipate a complete erosion of the risk premium through diplomatic headlines alone,” McKay said. — CNBC’s Lim Hui Jie contributed to this report.
