The Democrats’ victory in the midterm elections was seen by oil markets as a sign that the conflict in the Middle East could be nearing an end. However, the US and Iran remain far apart in their positions, leaving the risk of further escalation unresolved. Let’s discuss this topic and develop a trading plan for Brent.
The article covers the following subjects:
Major Takeaways
- OPEC production has recovered to 90% of its previous level.
- The geopolitical risk premium is declining.
- China’s oil imports have fallen by 15%.
- Long positions can be opened on a pullback from the $87.8–89.1 or $80.5–81.0.
Weekly Fundamental Forecast for Brent
Brent crude has declined on six of the past eight trading days, notching its worst weekly performance since April 2020. The downturn reflects the oil market’s recovery toward pre-conflict levels, a shrinking geopolitical risk premium, and lower transportation costs. Donald Trump’s remarks suggesting that renewed hostilities in the Middle East are unlikely provided the latest catalyst, pushing Brent to its lowest levels since late August.
Following reports that oil exports from the region had recovered to levels last seen in late February, new data suggests that production is also returning to normal. According to Reuters estimates, output from the 11 OPEC members increased by 1.38 million bpd in October, reaching 22.87 million bpd. Before the Middle East conflict began, production stood at an estimated 25.48 million bpd, meaning that approximately 90% of the lost output has now been restored.
At first glance, China’s higher oil imports appeared to offer support for Brent. The country imported 9.88 million bpd in October, up 9.4% from September and marking the highest level since March. However, the annual comparison paints a different picture: imports were down 13.3% year over year. Moreover, during the first 10 months of 2026, China purchased 15% less oil than in the same period of 2025.
Lower transportation costs are also contributing to the decline in Brent prices. A month ago, chartering a tanker capable of carrying 2 million barrels cost approximately $76.9 million. That figure has since fallen to $45 million.
Brent Spot and Futures
Source: Bloomberg.
The shrinking geopolitical risk premium is reshaping conditions in the oil market. MUFG notes that the spread between nearby Brent futures contracts narrowed from $4 to $2.6 per barrel in just three days, while spot oil prices slipped below futures prices. The Democrats’ victory in the midterm elections has convinced investors that the conflict in the Middle East will eventually come to an end. Before the elections, however, they had no such confidence.
Iran has increasingly come to expect that the Democrats will pressure Donald Trump into withdrawing US forces from the region. This may explain Tehran’s less conciliatory stance. Meanwhile, Washington considers Iran’s demands unrealistic. Such a widening gap between the parties raises the risk of a breakdown in negotiations and further escalation.
The recent minor clashes in the Middle East may prove to be the calm before the storm. If negotiations collapse, Iran’s allies could resume attacks, prompting Tehran to retaliate against the region’s oil infrastructure. In that scenario, the geopolitical risk premium could surge, pushing Brent prices sharply higher. For now, a diplomatic resolution appears increasingly unlikely. The positions of the parties remain too far apart, leaving the oil market vulnerable to renewed geopolitical shocks.
Weekly Trading Plan for Brent
Against this backdrop, the risks are still tilted to the upside. Therefore, a pullback in Brent toward the support zones of $87.8–89.1 and $80.5–81 per barrel could present an attractive opportunity to open long positions.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of UKBRENT in real time mode
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