Storage tanks at an oil refinery in Yokohama, Kanagawa prefecture, Japan. (Photo: Yuichi Yamazaki)
AFP via Getty Images
Oil prices fell on Wednesday as traders eyed signs of progress in the latest round of talks between the U.S. and Iran.
At 8:57am EDT, the Brent front-month oil futures contract traded at $92.63 per barrel, down 4.15% or $4.01, while the U.S. West Texas Intermediate front-month contract was down 5.39% or $5.08 to $88.84 per barrel.
That’s after the U.S. launched fresh airstrikes on Iran on Monday, targeting its missile launch sites and boats its claimed were planting mines in the key maritime artery of the Strait of Hormuz.
In a statement, U.S. Central Command or CENTCOM spokesperson Capt. Tim Hawkins said: “U.S. forces conducted self-defence strikes in southern Iran to protect our troops from threats posed by Iranian forces. We continue to defend our forces while using restraint during the ongoing ceasefire.”
According to the BBC, the strikes focused on an area near Iran’s southern port city of Bandar Abbas, which also has a naval base on the Strait.
In response, Iran condemned the U.S. action as a “gross violation” of the ongoing ceasefire and said it reserves the right to retaliate. However, officials on both sides also sought to downplay the latest incident.
Speaking whilst on an official visit to India, U.S. Secretary of State Marco Rubio said a lasting peace deal was still possible: “We’ll see if we can make progress. I think it’s a lot of talking back and forth going on about specific language in the initial document. So, it’ll take a few days.”
Meanwhile, a spokesperson for Iran’s Revolutionary Guard Corps said on Wednesday that the possibility of a return to war with the U.S. was “low.”
Emerging remarks from both sides, in tandem with ongoing negotiations via mediators in Pakistan and Qatar, dragged oil prices lower initially in Asia, followed by similar intraday bearish trends being noted during European and U.S. crude trading.
Stuck In A Circular And Endless Loop
While Brent and WTI futures have risen by over 30% and 35% respectively on a three-month comparison since the Iran War began on February 28, both are down by more than 10% on the previous week, by more than 17% on the previous month.
However, the market does appear to be stuck in what seems like a circular and somewhat endless loop of talks between Washington and Tehran via mediators. The initial ceasefire was originally announced on April 8 and has largely held since. But neither side appears to be bridging the gap.
As such, physical crude oil markets are getting increasing detached from the movement of oil futures, with premiums of as high $20 per barrel being noted in key supply hubs in Asia.
Other risk hedging moves by Middle Eastern exporters are also taking shape. Two of the region’s leading exporters – Saudi Arabia’s Aramco and the United Arab Emirates’ ADNOC are up exports via alternative routes and pipelines.
The UAE also quit the Organization of Petroleum Exporting Countries on May 1 after nearly six decades of membership. It was OPEC’s fourth largest producer.
Meanwhile, ADNOC confirmed last week it was accelerating its oil pipeline project aimed at adding export capacity via the port of Fujairah, bypassing the Strait of Hormuz. In the midst of seesawing oil prices, reports suggest the project – stated for completion in late 2027 – is well ahead of schedule and is already around 50% complete.
Disclaimer: The above commentary is meant to stimulate discussion based on the author’s opinion and analysis offered in a personal capacity. It is not solicitation, recommendation or investment advice to trade oil stocks, futures, options or products. Oil markets can be highly volatile and opinions in the sector may change instantaneously and without notice.