Oil prices at lowest in 1½ weeks as pause in attacks brings hope of US-Iran deal
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Vessels in the Strait of Hormuz near Bandar Abbas in Iran on July 27. The US-Iran conflict has disrupted shipping beyond the strait.
PHOTO: REUTERS
- Oil prices dropped to over a one-week low as hopes for a US-Iran deal eased tensions and reduced fears of supply disruptions in the Middle East.
- US President Trump confirmed "good talks" with Iran, while Oman proposed a joint regional mechanism to manage the crucial Strait of Hormuz, gaining regional support.
- Shipping through Bab el-Mandeb rose, but risks remain due to drone attacks on Saudi oil targets and retaliations, keeping potential supply disruptions a concern for markets.
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Oil prices extended losses on July 28, hitting their lowest levels in more than a week as hopes for a resolution to the US-Iran conflict grew and traders continued to assess developments in the Middle East.
Brent crude futures were down US$2.53, or nearly 3 per cent at US$85.83 by 0934 GMT. US West Texas Intermediate crude was at US$80.63 a barrel, down US$1.98, or 2.4 per cent, with both benchmarks at their lowest points since July 17.
US President Donald Trump said on July 27 that Washington was having “good talks” with Iran and that there was a chance of a resolution. However, he said US strikes would resume if negotiations failed, while Iran issued similar comments about retaliation.
“While flows of vessels through the Strait of Hormuz remain low, the market hopes the situation improves, based on new talks between Oman and Iran on a new mechanism for Hormuz,” said UBS analyst Giovanni Staunovo.
Oman has presented a proposal to Iran for a joint regional mechanism to manage the Strait of Hormuz with voluntary fees, a Gulf source told Reuters on July 28.
The Strait of Hormuz handles roughly a fifth of global oil consumption and is one of the world’s most important oil shipping choke points. The conflict has disrupted shipping beyond the strait, with traffic through the Bab el-Mandeb strait also affected.
Prices surged last week on fears that the attacks could lead to the closure of the Bab el-Mandeb route, the second-most important oil shipping choke point after the Strait of Hormuz and the only shipping route out of the Red Sea.
However, the number of vessels passing through Bab el-Mandeb rose to 28 on July 27, a four-day high, while traffic through the Strait of Hormuz remained low, according to Kpler shipping data.
Analysts warned that the risks to supply disruptions spreading to the Red Sea remain elevated after Saudi Arabia said it shot down drones aimed at petroleum targets, including in Riyadh. It said Iran-backed armed groups had launched the weapons from Iraq, and it reserved the right to respond.
Separately, Iran’s Houthi allies in Yemen said they had targeted the East-West Pipeline carrying oil to Saudi Arabia’s main Red Sea port of Yanbu in retaliation for Saudi drone incursions.
Goldman Sachs expects Brent to moderate to US$80 by year-end if Hormuz fully reopens by the fourth quarter, but Red Sea disruptions and attacks on Saudi oil infrastructure may pose a new source of upside risk for crude and refined products prices.
Elsewhere, US crude oil stockpiles likely fell last week alongside petrol, while distillate stocks likely rose, a preliminary Reuters poll showed on July 27. REUTERS