Oil prices saw a mixed day, initially dipping as Saudi Arabia began restoring crude supply through a key pipeline to the Red Sea and optimism grew around potential diplomatic solutions to the US-Iran conflict at the UN in New York. Brent crude futures fell by $0.07 (0.07%) to $99.18 a barrel, while West Texas Intermediate (WTI) futures dropped $0.35 (0.39%) to $90.17 per barrel. This downward trend pushed Brent below $100 a barrel for the first time since September 8, reflecting a more constructive market view on global oil supply.
However, this downward trend quickly reversed. Oil prices jumped nearly 4% as the US-Iran talks failed to produce a breakthrough, and Tehran signaled that the Strait of Hormuz would remain shut until its conditions were met. Brent settled up nearly 4% at around $103, and WTI rose approximately 2% to around $92. This rebound occurred despite a surprise increase in US crude stocks, which rose by about 3 million barrels to approximately 426 million barrels in the week to September 18, against expectations for a draw. Gasoline stocks, however, fell by about 1.7 million barrels.
Contributing to the price rally was a growing concern over a global diesel shortage. US President Trump's suggestion of a ban on US diesel exports, coupled with Russia's ban on diesel exports and the blocked Strait of Hormuz, has significantly tightened the market. This situation has driven up diesel prices and provided substantial support to the overall oil market. Shipping costs have also surged, with Very Large Crude Carrier (VLCC) freight to China reaching roughly $30 per barrel, an all-time high, due to increased risk and a shortage of supertankers.
Saudi Arabia's East-West pipeline, with a capacity of 7 million barrels per day, had resumed operations, offering a bypass for the Strait of Hormuz after being damaged earlier in the month. Despite these efforts to increase supply and bypass bottlenecks, oil flows via the Strait of Hormuz have averaged only about 6.5 million barrels daily since the start of the month, significantly less than the roughly 20 million barrels daily before the conflict. The market remains sensitive to any news of increased production or exports, as evidenced by the initial dip when supply improvements were announced.
