By Andrew Moran

Crude oil prices fell sharply to start the trading week on hopes of peace talks with Iran.

A barrel of West Texas Intermediate—the benchmark for U.S. oil prices—declined 7.24 percent to $96.58 at 12:28 p.m. ET on Nov. 2. Global Brent prices also fell 7.49 percent to around $104.93 a barrel in overseas trading.

Secretary of State Marco Rubio told reporters that President Donald Trump would prefer not to use military force against Tehran and instead resolve the conflict diplomatically.

“What the president expresses to you is incredible confidence that if we needed to do something militarily, we would have the ability to do it, and we really have everything we need to be successful,” Rubio said. “But we would prefer to do it peacefully.”

The president has previously said he would not launch an attack on Tehran before the midterm elections.

Iranian Foreign Minister Abbas Araghchi, according to the state-owned Islamic Republic News Agency, said a deal would be possible if the United States “demonstrates goodwill.”

Conflicting reports have surfaced in recent weeks on whether the administration plans to resume attacks on Iran.

In an interview with the Right Side Broadcasting Network on Nov. 1, the president declared victory in the eight-month-old war.

“We’ve had such a victory, and we’ll put it away very soon, one way or the other,” the president said. “Either they’ll make a deal, or we’ll just end it.”

U.S. oil prices have been pushing higher, climbing almost 9 percent over the past month.

“The price action in oil in recent weeks reflects a market increasingly bracing for the potential for more hostilities between the US and Iran,” commodity strategists at Dutch bank ING said in a Nov. 1 research note.

Absent either an escalation or a resolution, the key question is whether investors continue to price in elevated geopolitical risks or start dialing back those expectations, they added.

Because many major geopolitical developments have often surfaced over weekends, markets may remain cautious until the end of the trading week.

Year to date, U.S. oil prices have risen about 70 percent.

Pump Prices and Inflation

Despite the rise in oil prices, pain at the pump eased modestly last month.

As of Nov. 2, the national average for a gallon of gas was just below $4.17, down more than 20 cents from a month ago, according to the American Automobile Association.

Diesel prices have also fallen slightly, down about 8 cents to around $6.29.

Recent acceleration in diesel prices has been fueled by Middle East tensions and the conflict in Eastern Europe.

Russia and Ukraine have escalated their attacks, with Moscow’s refining infrastructure coming under fire. While flows are improving, worldwide diesel and gasoil supplies are tightening further, says Phil Flynn, senior market analyst at The PRICE Futures Group.

“Global diesel remains scarce,” Flynn said in an Oct. 30 note.

“Crack spreads have been extremely elevated … U.S. retail diesel has been stuck above $6 a gallon, and inventories are low heading into the Northern Hemisphere heating season.”

In the week ending Oct. 23, U.S. distillate fuel inventories sat below 103 million barrels, down from approximately 121 million barrels before the war in Iran started, according to the Energy Information Administration.

Higher fuel prices have contributed to this year’s inflation.

Gasoline accounted for more than half of the increase in September’s Consumer Price Index (CPI), according to the Bureau of Labor Statistics. The headline annual inflation rate edged up to 3.7 percent last month.

Looking ahead to the November CPI report, the Cleveland Federal Reserve forecasts the 12-month inflation rate will jump to 4.3 percent. Stripping out food and energy prices, the annual core inflation rate is expected to climb to 2.8 percent.

This could further pressure the Federal Reserve to continue raising interest rates.

Futures markets widely expect the Fed to follow through on another quarter-point rate hike in December, according to CME FedWatch Tool data.

Evgenia Filimianova and Tom Ozimek contributed to this report.