Brent crude fell about 17 percent last week, its steepest weekly percentage drop since 2020, as investors bet on an easing of the conflict involving Iran, according to Reuters.

Brent, the international benchmark, ended Friday’s trading at $98.32 per barrel. US West Texas Intermediate (WTI) crude settled at $90.83 per barrel, after dropping around 13 percent over the week.

Prices plunged by more than 8 percent on Wednesday alone, reaching their lowest levels in over two months, before recovering some ground later in the week.

The fall followed the US midterm elections, in which President Donald Trump’s Republican Party lost control of Congress. The result raised expectations that Washington could pursue a diplomatic solution to the conflict with Iran.

Analysts cited by Reuters pointed to signs of an emerging supply surplus as Middle Eastern oil exports recover and higher energy costs reduce global consumption.

Continued attacks on oil tankers in the Gulf and the Strait of Hormuz have raised concerns about possible supply disruptions, which have limited further declines in prices.

Background

The Strait of Hormuz, between Iran and Oman, is one of the world’s most important oil shipping routes. A large share of the crude oil traded by sea passes through it, so attacks on vessels or threats to the passage tend to push prices up quickly.

Sri Lanka imports almost all of its crude oil and refined fuel. Fuel prices on the island are revised by the Ceylon Petroleum Corporation (CPC) under a pricing formula that takes into account world prices, the exchange rate and taxes, with revisions made periodically, usually once a month.

The rupee has lost 6.7 percent against the US dollar so far this year, according to the Central Bank of Sri Lanka (CBSL). A weaker rupee raises the rupee cost of every barrel imported, even when dollar prices are falling.

What it means

For fuel-importing countries such as Sri Lanka, a sustained fall in international oil prices could reduce import costs and ease pressure on domestic fuel prices. Lower fuel costs can also feed through to transport fares, electricity generation costs and the price of goods carried by road.

A cut at the pump is not automatic. It depends on whether lower prices hold, on the exchange rate and on taxes included in the retail price. The next fuel price revision will show how much of the fall reaches consumers.