Oil falls for a fourth day on expectations for lower risk of Iran war escalation

Brent futures fell 97 cents, or 1.03% at $93.65 a barrel as of 0211 GMT, while US West Texas Intermediate crude futures were down $1.14, or 1.29%, to $86.98.

Both benchmarks tumbled by more than 8% in the previous session to settle at their lowest since August 31.

A weakened Trump, facing a Democratic Congress able to constrain his military options, has greater incentive to seek a deal, two sources close to Gulf government circles said on Wednesday. A full-scale assault on Iran now looks less likely, they said.

A resolution to the conflict could restore oil flows from the Middle East impacted by the war, though analysts caution the way forward remains uncertain.

"Markets are assessing the impact of the midterm elections to Donald Trump's next steps with the Iran war, pricing in more likelihood for the war to end," said June Goh, senior oil analyst at Sparta Commodities.

"However, there will be more volatility ahead as the path to full diplomacy to end the war is still wrought with many unknowns while the global strategic reserves have drawn very thin."

Crude shipments through the Strait of Hormuz - the key waterway for most Gulf oil supplies - have recovered to close to pre-war levels, according to analysts, though at a higher cost.

The resumption of Gulf supply has pushed the global oil market back into surplus after months of disruption caused by the war, JPMorgan said in a note on Wednesday.

JPMorgan estimates the market returned to a surplus of 1.1 million barrels per day in September, widening to 1.4 million bpd in October, nearly matching last year's average of 1.3 million bpd.

Still, the sharp selloff in oil may prove short-lived.

"The short answer is no," said Mukesh Sahdev, CEO of energy consultancy XAnalysts, when asked whether prices were likely to remain lower after the election.

Sahdev said geopolitical risks remained difficult to predict and noted the incoming Congress would not take office until January, meaning US policy options had not immediately changed.

He also noted commercial oil inventories in major consuming countries are near their lowest in 15 years and said Iran could emerge from the US election outcome with greater resolve.

US crude, gasoline and distillate inventories all fell last week as demand hit its highest in a year, the Energy Information Administration said on Wednesday. [EIA/S]