Oil Edges Lower as Traders Weigh Hormuz Talks and Russia Risk
(Bloomberg) — Oil fell for a fourth day as traders weighed progress on increasing energy flows through the Strait of Hormuz against rising Russia-Ukraine tensions that are curbing output.
Brent traded near $87 a barrel, and is down more than 7% this week, while West Texas Intermediate was near $82. Crude rose Wednesday on a report that Russian President Vladimir Putin was planning an escalation of the war in Ukraine, before reversing those gains after Iran’s military said it reached a revenue-sharing agreement with Oman on Hormuz.
Oil has slipped this week on optimism over the agreement between Iran and Oman and after US economic measures against Tehran and its trading partners weren’t as harsh as anticipated. Prices are still up more than 40% this year after the six-month conflict crimped flows from the Persian Gulf.
“The market has started pricing in the possibility of another ceasefire emerging,” said Saul Kavonic, senior energy analyst at MST Marquee, referring to talks between Oman and Iran that are seen as a precursor to an agreement between Tehran and Washington.
But crude is now in a holding pattern as traders await confirmation that a deal can be reached, he said. “There have been many false starts to ceasefires already, so the market is hesitant to move prematurely.”
Tehran has repeatedly said an agreement on navigation would not equate to an immediate re-opening. Nevertheless, crude appears to be flowing from the Persian Gulf, with US President Donald Trump claiming that 10 million barrels of oil had exited Hormuz on Tuesday.
Satellite images show Saudi Arabia appears to be ramping up oil loadings inside the Persian Gulf. That’s a sign the world’s largest crude exporter is reorienting shipments amid threats from Yemen’s Houthi militants to its Red Sea exports.
Still, risks remain. A tanker was hit by an unknown projectile in Hormuz, the UK Maritime Trade Operations said. The incident, reported on Aug. 25, is being investigated by local authorities, it said.
Meanwhile, an escalation in the Russia-Ukraine conflict may further threaten global energy supplies. Recent strikes by Kyiv on refineries and ports have prevented Moscow from diverting crude into exports, compounding disruptions from the Iran war.
“Frequent attacks on Russian oil and refining infrastructure are starting to make a dent in overall Russian oil supply by up to around 10%, with an even larger impact on refined products,” Kavonic said.
Signs of a broader fuel squeeze are also evident in the US, where diesel supplies have fallen to the lowest seasonal level ever, according to the Energy Information Administration. The situation in Europe is so tight that the region has tapped Mexico for the workhorse fuel for the first time in seven years.
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