| Commoditiy | Price | Weekly Change | 50day-Ave | 100day-Ave | 200day-Ave |
|---|---|---|---|---|---|
| Brent ($/b) | 83.97 | 0.20 | 83.73 | 93.70 | 81.54 |
| US WTI ($/b) | 78.48 | -1.86 | 80.26 | 89.30 | 76.65 |
| ICE Gasoil ($/MT) | 1,209.75 | 3.50 | 1,070.41 | 1,150.00 | 950.41 |
| Jet CIF NWE ($/MT) | 1,198.16 | -22.78 | 1,114.95 | 1,254.85 | 1,041.44 |
Last week there were growing hopes that a deal to reopen the Strait of Hormuz was close, with Brent briefly trading below 80 \$/b. However, despite repeated signals that an agreement was imminent, progress has been limited and talks remain unresolved.
Oil markets opened lower last Monday after President Trump called off planned strikes on Iran, saying a deal to reopen the Strait of Hormuz was close. Since then, negotiations have remained stuck in a state of being "almost agreed", yet no formal agreement has been reached. The discussions have reportedly taken place between Iran and Oman, without direct US involvement. Although details remain limited, reports suggest the proposed arrangement would give Iran oversight of vessels entering the Gulf through the Strait. In practice this would involve supervising inspections of ships, while any associated fees would technically be voluntary. However, it is easy to imagine that vessels making voluntary payments may face a smoother inspection process than those that do not. The arrangement is also said to be temporary, potentially lasting between two and four months.
Over the weekend, Iran's Supreme National Security Council appeared to broaden its demands, reportedly calling for a permanent halt to military action against Iran and its regional allies, an end to the US naval blockade, compensation for conflict related damage, the removal of US sanctions and the release of frozen Iranian assets. It is difficult to see the US accepting such extensive conditions, particularly if they also involve granting Iran additional control over access to the Strait. While US officials continue to suggest that a deal is close, the rhetoric has become less certain, with Trump reportedly describing current discussions as only "semi negotiating".
Despite the lack of progress, Brent is trading around 84 \$/b this morning, broadly unchanged from Friday's close. The muted market reaction is perhaps surprising given that attacks on shipping continue. A UAE vessel was reportedly attacked in the Strait over the weekend, while an Indian vessel was sunk in the Red Sea last week. There are also concerns that renewed civil war in Yemen could once again draw in Saudi Arabia. At the same time, Iranian backed militias in Iraq have vowed retaliation following recent joint US and Saudi military action, while Israel has rejected the latest Gaza peace proposals. One factor helping to cap prices has been developments in refined products. China announced higher export quotas for middle distillates, which should increase diesel and jet fuel availability on international markets. This has helped reduce distillate premiums over Brent, although margins remain elevated by historical standards. Overall, the oil market continues to display cautious optimism that a deal can eventually be reached, but confidence appears to be fading as negotiations drag on.
One of the more notable developments last week was the joint Saudi and US operation against Iranian backed militias in Iraq. Saudi Arabia has largely sought to avoid direct involvement in the conflict, making its participation a significant shift. Following repeated Houthi attacks on Saudi interests, including disruptions to Red Sea shipping and strikes on Saudi territory itself, Riyadh may have concluded that a stronger response was required. One interpretation is that Iran's weakened position has created an opportunity for regional powers to move against its network of proxy groups. This would fit with reports that Hamas has agreed to disarm, alongside growing pressure on the Lebanese government to assert greater control over Hezbollah. While such developments may strengthen long term regional stability, they could also create further disruption in the short term. Another explanation is that Saudi Arabia's actions were intended primarily as a warning to Tehran that continued escalation risks drawing other Gulf states more directly into the conflict.
The talks between Iran and Oman remain the market's best hope for reopening the Strait of Hormuz. Reports suggest Oman proposed giving ships a choice between a northern route through Iranian waters and a southern route through Omani waters, with fees determined by the route selected. Iran was reportedly concerned that most vessels would favour the Omani route, reducing its share of the revenues, and instead proposed a system whereby vessels enter through one route and exit through the other, ensuring both countries receive income.
Despite these differences, Trump has again stated that a deal is close and that further talks are expected today. As has been the case over the past two weeks, the outcome of those discussions is likely to drive market direction. Should negotiations fail once again, it may simply result in another repeat of the volatility seen over recent weeks, with prices quickly retracing any losses as geopolitical risk returns to the forefront. If meaningful progress is achieved, Brent could drift back towards 80 \$/b. If not, it is difficult to see prices falling much further and a move back towards 90 \$/b cannot be ruled out.
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