Oil prices experienced significant volatility on Tuesday, initially advancing after President Donald Trump indicated progress in Iran negotiations and the potential for the Strait of Hormuz to reopen as early as Wednesday. Trump stated from the Oval Office on Monday that this was a "last chance" for Iran to agree to a "good document." However, this optimism was short-lived as prices later plunged by more than 5%, with Brent crude futures settling at $79.36 a barrel and West Texas Intermediate (WTI) futures at $75.77 a barrel, both marking three-week lows. The decline was attributed to conflicting reports and uncertainty surrounding the US-Iran talks, which undermined hopes for a swift diplomatic resolution to the conflict.
Several factors contributed to the market's swings. Earlier in the day, a senior Iranian source suggested Tehran's plan to reopen the Strait of Hormuz, involving control over inbound and visibility over outbound shipping with intervention capabilities, was being discussed with Oman. This initially supported prices. However, hopes for a diplomatic breakthrough were dampened by varying statements. US Secretary of State Marco Rubio acknowledged progress in talks with Iran and Oman regarding ship movements through the strait but cautioned that no final agreement had been reached. Treasury Secretary Scott Bessent had earlier suggested a deal could come as soon as Tuesday or Wednesday.
The ongoing conflict has had a substantial impact on global oil supplies. Saudi Aramco's CEO, Amin Nasser, reported that the world has lost over 2.6 billion barrels of oil since the war began in February, equivalent to nearly a month of normal global production. This disruption, largely due to the closure of the Strait of Hormuz, has led to significantly depressed export levels from the Middle East. Goldman Sachs anticipates Brent crude will trade between $80 and $90 per barrel until a new US-Iran agreement is confirmed or the conflict escalates further. Analysts, like Simon-Peter Massabni, head of business development at XS.com, noted that the prospect of a diplomatic solution has helped remove some of the geopolitical risk premium from crude prices, especially after the US resumed bombing Iran last month.
Adding to supply concerns, Houthi rebels have announced a blockade of Saudi Arabia's oil industry, threatening shipping through the Red Sea and potentially impacting the East-West Pipeline. In response, Saudi Aramco is exploring expansions of its East-West Pipeline and new export routes to mitigate these disruptions. OPEC+ also agreed to increase crude oil output for a sixth consecutive month in September, pledging to monitor developments closely. Despite the current price dip, some analysts, like Ahmad Assiri from Pepperstone, caution that investors remain reluctant to fully discount the risk of renewed escalation, meaning oil at $100 levels cannot be ruled out if geopolitical tensions worsen.
