Oil prices dropped by around 4% early on Wednesday as hopes of a U.S.-Iran deal outweighed concerns about rapidly drawing inventories as the Strait of Hormuz remained closed on the back of fresh U.S.-Iran hostilities.
As of early Wednesday trade in Europe, WTI Crude, the U.S. benchmark, is down by 4.32% at $89.83 per barrel. The international benchmark, Brent Crude, had fallen 3.66% to $95.94, remaining below the $100 a barrel mark for the third consecutive day.
Traders and speculators appear hopeful, again, that the United States and Iran could be close to a framework agreement that would extend the ceasefire by 60 days and allow further negotiations on the re-opening of the Strait of Hormuz and Iran’s nuclear program.
“Oil prices are under pressure on Wednesday morning amid shifting expectations around a potential US?Iran deal, although risks remain elevated with ongoing tension near the Strait of Hormuz,” ING commodities strategists Warren Patterson and Ewa Manthey said in a note early on Wednesday.
“Prices are under pressure from improved sentiment around a potential US?Iran deal, even as hostilities continue and the Strait of Hormuz remains effectively closed. Military activity persists near the strait, including US strikes and reported Iranian engagement,” the strategists noted.
On Tuesday, Iran accused the U.S. of a “grave violation” of the ceasefire, following the new U.S. strikes on missile sites and boats in southern Iran, which the U.S. Central Command described as “self-defense.”
U.S. Secretary of State Marco Rubio, who earlier this week played down the possibility of an imminent deal, said an agreement was still in the realm of possibility, but U.S. President Donald Trump wants to either “make a good deal,” or no deal at all.
The noise around a potential deal has continuously trumped market fundamentals in recent weeks, with traders trying to play the market on hopes of an agreement and largely ignoring the global energy crunch, with most supply from the Middle East still trapped behind the Strait of Hormuz.
Inventory data from the American Petroleum Institute (API) later today, and the EIA weekly petroleum report on Thursday, could move the oil market in the coming hours while traders hope for – and apparently bet on – a U.S.-Iran deal.
By Tsvetana Paraskova for Oilprice.com
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