Oil turns lower as Trump says US to halt Israel aid

Oil futures rose early Tuesday after US officials confirmed a strike on Iran's Qeshm Island and a senior Iranian official said Washington and Tehran were still far from a deal to end their war. The rebound faded by midday in Europe. Prices turned sharply lower after President Donald Trump said the US would stop its annual military aid to Israel, according to Reuters. Brent crude traded above $107 a barrel earlier in the session, then fell to its lowest level since October 8.reuters.com

The swings show how closely traders are watching the conflict over the Strait of Hormuz. Before the war, about 20 million barrels of oil passed through the strait every day, CNN reported.us.cnn.com

A strike described as defensive

US forces carried out limited strikes on Qeshm Island on Monday. Officials described them as self-defense against Iranian efforts to target shipping and US assets, NBC News reported. "This was a defensive measure for Iranians using surface-to-air missiles against US assets," one official told CNN. Another official said the strike followed Iran firing at a US aircraft. US officials told ABC News the strikes were the latest in a series of limited actions in recent weeks and did not mean major combat operations had resumed. Central Command has not publicly announced the strikes, Al-Monitor noted.nbcnews.com+3

On Tuesday, a senior Iranian official told Reuters that Tehran would not accept Washington's "excessive demands." "Tehran's conditions must be met if the US wants Hormuz reopened," the official said.reuters.com

From rebound to selloff

The early gains followed a steep drop on Monday. Brent settled 7.63% lower at $104.77 a barrel as hopes for diplomacy grew, Reuters reported. Sentiment turned again after Trump spoke on Fox News' "Fox and Friends." "We've already agreed that by the end of this year we won't be paying Israel," he said, according to Reuters. By the afternoon, CNBC reported that Brent and West Texas Intermediate were both down for a second straight session.cnbc.com+2

Diplomatic efforts are still underway. A spokesperson for Qatar's foreign ministry said the US and Iran remain committed to mediation and are reviewing proposals to bridge their differences, Reuters reported. Vice President JD Vance told CNN that he and Trump "feel really good about the prospect of potentially coming to a negotiated settlement," CNBC reported.reuters.com+1

Midterms raise the stakes

The strike came on the eve of Tuesday's US midterm elections. Frustration over the war and higher fuel prices has become a key issue for voters, according to Reuters. Oil gained more than 10% in October as markets priced in the risk of escalation after the vote, CNBC reported.cnbc.com+1

"Despite these positive signals, it's probably too early to think escalation risks have passed," ING said in a note quoted by Reuters.reuters.com