Oil and natural gas extended a plunge on unconfirmed reports of further diplomacy in the US-Iran conflict.
The US approved a draft memorandum of understanding that the Qatari delegation presented to Iran yesterday, the Al Araby news service reported Tuesday, citing sources close to the mediation team. Bloomberg reported earlier that the two sides are reviewing the latest proposals from mediators on how to bridge their divides and avert another round of all-out war, citing a diplomat briefed on the matter.
The global oil benchmark Brent slumped as much as 4% before recovering some losses to trade at about $103.50 a barrel, extending Monday’s plunge. European gas futures fell as much as 9.2% to €86.15, the lowest since Oct. 21.
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Both slumped on Monday after Iran’s president Masoud Pezeshkian made a comment about Supreme Leader Mojtaba Khamenei giving his government more leeway in talks. Pezeshkian offered another signal of Iran’s willingness to negotiate later on Tuesday, saying in a post on Telegram that Khamenei had granted “additional authority” to discuss previously “non-negotiable” issues.
The signs of diplomacy caused another slump after oil had earlier advanced more than $1 after the Wall Street Journal cited American officials as saying that the US attacked Iran’s Qeshm Island at the mouth of the vital Strait of Hormuz.
President Donald Trump said in an interview with Fox News on Tuesday that the US hit an Iranian anti-aircraft facility “very nicely,” while Energy Secretary Chris Wright insisted strikes didn’t impact flows through Hormuz.
“Conflicting headlines are whipping prices around this morning, and traders appear reluctant to buy the dip in the middle of the melee. Expect the back-and-forth to continue, with technical flows amplifying the swings,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Group. “We’ve been here before: traders have learned that in this environment, conviction can be overtaken by the next headline — and the potential reward may not justify the risk.”
Monday’s slide followed a rally in October that saw prices hit a six-month high as ships were targeted around Hormuz and traders showed reluctance to trust in talks, which have so far repeatedly failed to make the strait risk free. Still, robust exports from Persian Gulf producers are helping keep prices in check, with physical-market indicators showing signs of easing.
While Iranian exports remain effectively halted, flows from Saudi Arabia, the United Arab Emirates, Iraq and Kuwait climbed by 10% to more than 15 million barrels a day last month. The market for real-world barrels has begun to ease in turn, with Middle East oil market metrics indicating near-term supply is outpacing demand for the first time since July.
In another sign of the resurgent regional supply, the boss of Saudi Aramco said the company will maximize oil production this quarter as it looks to keep cranking up shipments.
Meanwhile, the nearest timespread for the regional Dubai benchmark, which helps set pricing for crude exported from the region, has entered into contango — the hallmark of a bearish market. Prices for the North Sea oil cargoes that underpin Dated Brent, the most cited physical oil benchmark, have also eased.
