Oil falls as traders weigh U.S.-Iran diplomacy and election risks

Jefferies sees Origin dividend upside while cutting AGL Energy price target

Oil futures settled lower Monday as traders weighed efforts to revive U.S.-Iran negotiations against the possibility of additional U.S. military action, The Wall Street Journal reported. Middle Eastern mediators were seeking to revive negotiations between Washington and Tehran as the U.S. prepared additional military options against Iran, according to the journal’s Market Talks coverage.

Early in the Asian session, front-month WTI was down 0.7% at $101.02 a barrel, while front-month Brent was 0.9% lower at $114.81. Lloyd Chan of MUFG Bank said in a report that a renewed escalation that pushed crude higher would amplify the adverse terms-of-trade and inflation shock for the region’s net energy importers and those with current account deficits.

In a later market update, oil futures started the week cautiously lower, with WTI down 1.2% at $101.99 a barrel and Brent off 0.8% at $115.81. Aaron Kildow of Sparta Commodities described the choice in a note: “At its core, this is a binary outcome: war, or no war, and the market has not resolved which way it falls.” Kildow said stronger flows through the Strait of Hormuz were helping keep a lid on regional differentials, but “we doubt that Asian buyers are putting cargos into storage, especially at these high price levels.”

By settlement, oil futures remained lower as the market weighed Middle East diplomacy and the possibility of escalation after the U.S. midterm elections. Robert Yawger of Mizuho said in a note: “Considering the limited odds of the U.S. striking Iran before the midterm elections on Nov. 3 versus a much greater chance after the elections, I find it rather odd that the backwardation continues to expand despite the fact the [Brent] December contract expires on Friday before the election.” Yawger said the January contract would be at the front of the curve “through what could be a very active month of November.” December Brent settled down 0.8% at $115.81 a barrel, the January contract fell 0.9% to $110.74, and WTI dropped 1.5% to $101.76.

Jefferies also saw potential upside in Origin Energy’s annual dividend. Analyst Anthony Moulder expected a payout of A$0.62 per share from Origin, ahead of A$0.60 guidance. Jefferies said its outlook was underpinned by the performance of the Australia Pacific LNG facility. The APLNG dividend to Origin could be worth as much as A$991 million in FY27, a stronger outcome than the A$780 million Jefferies previously projected.

Jefferies said in a note: “Ahead of the 1Q27 trading update on October 30, port shipments data indicate LNG export volumes are tracking strongly above the prior corresponding period (more than 7.8 petajoules) suggesting potential benefit from cargoes sold into the higher-priced spot JKM market.” JKM refers to the Japan Korea Marker, a regional benchmark for LNG pricing.

For AGL Energy, Jefferies cited strong utilization at the Bayswater and Loy Yang A power plants in FY27 so far, although volatility remained lower. The firm expected FY27 Ebitda to track near the midpoint of AGL’s A$1.90 billion to A$2.20 billion guidance range, specifically A$2.043 billion.

Anthony Moulder said: “The greater impact is in FY28, where lower forward curves have reduced our FY28 Ebitda forecast by 1.8% to A$2.016 billion.” The forecast was some 1.1% below consensus expectations. Jefferies’ underlying net profit forecast of A$484 million was also below consensus. The firm cut its AGL price target by 1.7% to A$10.70 per share; AGL ended Monday at A$9.03.

Gold futures settled 0.8% higher at $4,022.30 a troy ounce, supported by the pullback in oil even as the U.S. dollar gained and 2-year yields edged higher. Silver rose 0.7% to $54.108 a troy ounce. Peter Cardillo of Spartan Capital said metals had fallen to “a psychologically and technically important level” and added: “We view the move as constructive for gold, which appears to be presenting another solid entry point.”