Oil prices edged lower in early Asian trade on Tuesday, giving up gains from the previous session as hopes of diplomatic progress between the U.S. and Iran tempered fears of a further supply shock.
At the time of writing, Brent crude was trading at $98.08, down 1.28% on the day, while West Texas Intermediate had fallen 1.91% to trade at $97.19. While futures are trading below $100, the physical market is showing signs of serious distress, with Forties Blend nearing $149 per barrel on Monday.
The futures market is proving highly sensitive to even the faintest signs of de-escalation, with prices dropping despite the U.S. blockade of the Strait of Hormuz coming into effect on Monday. President Trump claimed Iranian negotiators had reached out and were eager to strike a deal, while Iran’s President signaled the country remained open to talks within the framework of international law.
The distress in the physical market, however, is becoming increasingly hard to ignore. The last of the oil tankers to traverse the Strait of Hormuz before the outbreak of conflict are now nearing their destinations, marking a pivotal inflection point for global supply chains. Once those final prewar cargoes are absorbed, refiners, particularly in Asia, will have to scramble to secure alternative barrels from the Atlantic Basin.
As Asian buyers pull cargoes from the U.S., North Sea, and Africa, refiners in Europe and the United States will then start to feel the shortage more intensely. Spot market dynamics already reflect that tightening, with prompt crude grades trading at steep premiums to futures.
The International Energy Agency has indicated it stands ready to release additional strategic reserves if necessary, while urging countries to avoid hoarding oil or restricting exports.
For now, traders appear to be balancing structural tightness against fragile diplomatic optimism, with oil futures lower and U.S. stocks managing to recoup their losses from the first weeks of the war. The question now is just how long the market can live on hope alone.
By Josh Owens for Oilprice.com
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