Brent crude extended its slide early on Tuesday, falling below $93 a barrel after Donald Trump played down the prospect of renewed military strikes on Iran, easing fears of a wider disruption to oil supplies.

Brent futures were down 24 cents, or 0.23%, at $92.33 a barrel by 0102 GMT, while US West Texas Intermediate (WTI) fell 35 cents, or 0.40%, to $86.50 a barrel. The move extends a bruising run for oil: Brent settled $5.75 lower on Monday, a fall of 5.85%, at $92.57 a barrel, before slipping further in post-settlement trade, losing more than $7 on the day in total.

That took Brent to its lowest level since late August. WTI settled $3.98 lower on Monday, down 4.38%, at $86.85 a barrel, and later fell by more than $5. The slide follows a 16% plunge for Brent last week, its steepest weekly drop since the start of the Covid-19 pandemic, as the war premium built up during the escalation over Iran drained away.

Trump remarks ease war fears

Trump said on Monday that US military action against Iran was not necessary, and over the weekend he said it was highly unlikely he would order fresh attacks if negotiations to end the conflict continued. The comments reassured traders who had spent weeks pricing in the risk of a wider war, attacks on shipping near the Strait of Hormuz and a blockade of Iranian crude exports.

Even so, attacks on ships near the strait have continued, and the path to a settlement remains uncertain. For now, though, markets are treating the risk of a major new escalation as lower than it was a week ago, and that has removed much of the fear premium that had pushed Brent above $112 at the start of the month.

London shares felt the shift on Monday. The FTSE 100 rose 1% to close at 10,782.87, helped by lower oil prices easing inflation worries, while energy stocks fell, with BP and Shell both down by more than 0.5%.

A heavy week for oil

The scale of the retreat has been striking. Brent has fallen from above $112 at the start of November to below $93 in little more than a week, a drop of more than $19 a barrel. The decline has been driven by diplomacy rather than by a sudden change in physical demand, but analysts say the physical market is also showing signs of softness.

Morgan Stanley said dated Brent, the benchmark used to price physical cargoes, had fallen to a discount against the nearby futures contract, a sign of softer demand and ample supply in the spot market. When physical crude trades at a discount to futures, it usually means buyers are in no hurry and there is plenty of oil available.

Supply surplus weighs on prices

JPMorgan estimated the global oil surplus at around 1.4 million barrels per day in October, while a Reuters survey found that OPEC production rose by 1.38 million barrels per day to 22.87 million barrels per day. OPEC+ producers agreed on 1 November to keep December output targets at September levels, but output from the wider group has still been climbing.

The combination of rising supply and a fading war premium leaves the market well supplied heading into the winter. Traders will now watch whether the diplomatic track holds: any fresh escalation could quickly restore the premium that has just been stripped out, while a durable deal would leave prices exposed to the surplus.

What traders watch next

Attention now turns to US inflation data due later on Tuesday, which could shape expectations for the Federal Reserve's next move on interest rates. A cooler reading would support the case for the rally in equities to continue, while a hot figure could revive worries about borrowing costs and demand.

Weekly US inventory figures will also be watched for confirmation that supplies are building. For now, the direction of travel is clear: with the war premium draining and supply plentiful, oil is trading at levels not seen since late August, and the market's focus has shifted from disruption to surplus.