Oil Traders Price In Iran Escalation Risk After U.S. Midterms; ING Warns Prices May Fall If Strikes Don't Resume

Oil traders are positioning for a possible resumption of Middle East hostilities after the November 3 U.S. midterm elections, ING commodity strategists wrote in a note, warning that crude prices are likely to drop if strikes on Iran do not materialize. President Trump has repeatedly hinted he may restart attacks on Iran after the midterms, but ING analysts Warren Patterson and Ewa Manthey said escalation is not a done deal. "If we get past the elections without renewed strikes on Iran, that might be enough for the market's risk premium to start eroding," they wrote, adding that a U.S.-Iran agreement is not required for prices to pull back. The analysts questioned how far any decline would run, noting that reports of oil flows through Hormuz returning to pre-war levels initially weighed on prices before the effect faded, clashing with reports of Iranian strikes on tankers that reached an all-time high this month. Diesel diverged from crude, with the ICE gasoil crack spread falling to $70 per barrel — the lowest since early October — after reports of Russian diesel heading to the United States.