| Commoditiy | Price | Weekly Change | 50day-Ave | 100day-Ave | 200day-Ave |
|---|---|---|---|---|---|
| Brent ($/b) | 108.19 | 12.71 | 94.12 | 79.14 | 72.58 |
| US WTI ($/b) | 96.75 | 7.14 | 89.02 | 74.47 | 68.48 |
| ICE Gasoil ($/MT) | 1,285.75 | 200.25 | 1,124.81 | 889.74 | 793.39 |
| Jet CIF NWE ($/MT) | 1,523.57 | 174.07 | 1,331.82 | 1,017.93 | 871.28 |
Oil has continued higher again this morning with Brent trading over 108 \$/b. The question lingering in the market is whether the US-Iran talks are on or off at the moment. At the start of last week, there were hopes of more US/Iran talks to be held on the Tuesday ahead of the expiry of a ceasefire on Wednesday evening. When Iran did not confirm its attendance, the talks were abandoned and Trump announced an indefinite ceasefire with Iran and said he was in “no rush” to reach a deal. This was positive in that it reduced the risk of hostilities restarting, but negative in that there is now no timeline for finding an agreement that could lead to the Strait reopening. Both sides had conditions that the other side won’t accept: Iran wanted the US blockade to end before having talks whereas the US won’t end the blockade until there is as deal, which can’t be achieved without talks. On Friday there was the news that Iran’s Foreign Minister, Abbas Araghchi, was to visit Pakistan, leading to speculation that another meeting with the US might be in the offing. Later, on Friday evening, it was confirmed that a US delegation (Witkoff and Kushner) would travel to Pakistan, only for this to be called off by Trump on Saturday, saying that a revised plan received from Iran was not enough to justify going. Trump companied about “tremendous infighting and confusion” within Iran’s leadership. Clearly dialogue has continued and Iran has presented a new proposal to the US, which Trump has concluded as not good enough. Substantive issues remain to be overcome and there is little trust between the two parties. Also, the recently extended ceasefire between Israel and Lebanon is fraying. Israel's Prime Minister Benjamin Netanyahu has reportedly ordered his military to "vigorously attack Hezbollah targets", further complicating progress between the US and Iran. The result of this is that there does not seem to be an immediate prospect of the Strait of Hormuz being reopened.
With the prospect of longer disruptions oil market out of the Persian Gulf, it is worth keeping an eye on US output. The US was once talked about as the new swing producer to rival Saudi Arabia because its shale production could ramp up quickly. There has not been much sign of production increasing. The weekly rig count numbers have remained quite static, indicating that there has not been a ramp up in drilling activity. Output from existing production and rigs has not changed much either. There has, however, been an increase in exports of crude and refined products which might so far have been supported by inventory. The US strategic reserve release is ongoing and might be contributing to an increase in overall crude inventories, but refined product inventories are falling, middle distillates are particularly low for the time of year. The reasons for drilling activity not increasing could lie in the shape of the forward curve. December 2028 and 2029 WTI are below 70 \$/b, up only around 5 \$/b since the conflict started. In other words, there is not sufficient confidence in a sustained high price environment to invest in drilling activity.
While we wait on the stalemate in terms of progress in talks between US and Iran, there are some levels to look out for. The June Brent contract, which is currently the front contract, is now close to expiry trading around 108 \$/b. A more useful reference is the gasoil front contract. This has a closer expiry and is a better indicator of pressure in the markets that are most affected by the crisis, diesel and jet fuel. This has recovered from a recent sell-off down to 1000 \$/MT and is now back to close to 1300 \$/MT. This could trend higher again if there continues to be no sign of progress to open the Strait, back to the 1400 to 1600 \$/MT highs during the conflict so far.
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