Oil gains over 2% as talks to end US-Iran war remain uncertain

[BENGALURU/SINGAPORE] Oil prices rose more than 2 per cent on Tuesday (Aug 4) as a diplomatic resolution to the US-Iran conflict remained uncertain, while disruptions to oil flows through key shipping routes persisted.

Front-month Brent futures rose US$2.27, or 2.71 per cent, to US$86.04 a barrel by 0944 GMT after dropping 7 per cent in the previous session to a three-week low.

US West Texas Intermediate (WTI) crude was up US$1.72, or 2.14 per cent, at US$82.06 a barrel after falling more than 5 per cent in the previous session to its lowest in nearly a week.

Prices had dropped after US President Donald Trump said on Sunday he was holding off on new attacks on Iran, pending ongoing talks to end their war and settle claims over control of the key Strait of Hormuz.

On Monday, however, Iran’s Foreign Ministry spokesperson Esmail Baghaei rejected Trump’s claim, saying no negotiations with the US were taking place and no meetings were scheduled.

“Renewed strikes on vessels in the Strait of Hormuz and still restricted flows of ships have supported oil prices,” said Giovanni Staunovo, a UBS analyst.

“While production in the Middle East has recovered from the lows, it remains below pre-conflict levels, keeping the oil market undersupplied.”

Gulf shipping traffic little changed

The Hormuz dispute is a central sticking point in talks. Before the conflict began in late February, the Strait of Hormuz handled about one-fifth of global daily oil and liquefied natural gas supplies.

“Gulf exports remained under pressure, with Strait of Hormuz transits only marginally improving from extremely depressed levels,” ANZ analysts said. “The export disruption story is intact, with Iranian attacks on vessels constraining flows.”

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Shipping traffic at key Gulf waterways little changed on uncertain US-Iran peace talks

Shipping traffic at the key Gulf waterways of Bab el-Mandeb and the Strait of Hormuz held largely unchanged at the start of the week.

Hormuz remains dangerous for vessels. On Tuesday, the UK Maritime Trade Operations agency flagged an incident 37 km north-east of Oman’s Al Khasab, after a cargo vessel broadcast that it had been hit by an unknown projectile.

In the Red Sea, six Saudi-flagged supertankers changed course in the Gulf of Aden recently for southern Africa, while two tankers laden with Saudi oil crossed the Bab el-Mandeb Strait, shipping data showed on Monday.

Goldman Sachs expects Brent to remain in the range of US$80 to $90 a barrel until there is either confirmation of a new US-Iran agreement or a significant escalation in attacks and targets.

The bank said the physical oil market was tightening, with its global visible stocks counter showing inventories falling by 6.3 million barrels per day over the past two weeks, likely driven by lower flows from the Persian Gulf and Red Sea, reduced Russian oil exports and stronger Asian imports, including from China. REUTERS