Oil prices were once again under pressure in early Asian trade as a 10-day ceasefire between Israel and Lebanon came into effect and President Trump suggested talks with Iran may resume this weekend.
At the time of writing, WTI was trading at $93.26, down 1.51%, while Brent had fallen 1.03% to $98.37. Both benchmarks remained significantly below the triple-digit levels they had spiked to at the start of the week after the last round of talks broke down.
The ceasefire between Israel and Lebanon, which came into effect at midnight local time, remains fragile, with the Lebanese Army accusing Israel of violating the agreement with “several Israeli attacks recorded, in addition to intermittent shelling”. Another potential flashpoint in the ceasefire is Prime Minister Netanyahu’s insistence that Israeli troops will remain in southern Lebanon during the truce, with Hezbollah saying it will reject any arrangement that would grant Israel operational latitude inside Lebanese territory.
The Israel-Lebanon ceasefire may be the first step in another round of talks between the U.S. and Iran, with President Trump saying that Iran had agreed they would not acquire a nuclear weapon, and would give up the “nuclear dust”. While Iranian officials have not responded to those claims, Iran’s Permanent Representative to the UN, Ambassador Amir Saeid Iravani, said they remain “cautiously optimistic” about negotiations.
Meanwhile, the U.S. continues to threaten renewed combat operations if negotiations fail, and has now expanded the blockade of the Strait of Hormuz to include all Iranian and sanctioned vessels regardless of location.
Ahead of potential talks, U.S. oil industry leaders have warned Trump against allowing Iran to impose tolls on vessels transiting the Strait as part of any future agreement. Daniel Yergin, vice-chair of S&P Global, emphasized that such a development wouldn’t only be massively dangerous in itself, but it would also risk “upending the principle of freedom of the seas.”
While Trump had initially floated the idea that the U.S. could participate in tolling arrangements alongside Iran, the White House has since reiterated that the Strait of Hormuz is international water and must remain open.
For oil markets, the primary issue at the moment is avoiding critical shortages, and even a peace agreement between the U.S. and Iran is no guarantee of that.
By Josh Owens for Oilprice.com
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