Oil: Prices retreat on Gulf diplomacy – ING

ING analysts Warren Patterson and Ewa Manthey report that oil prices have seen a renewed downward trend. Their focus is on the progress of talks involving Iran, Oman, and Pakistan regarding the Strait of Hormuz and the Middle East war. They mention the fragile nature of Hormuz flows and express doubts about US flow estimates. Additionally, they point out tighter US product markets despite increasing crude inventories.

The oil prices continue to decline, with ICE Brent settling 3.89% lower yesterday and dipping below $90/bbl. This downward pressure persisted in early Asia trading today. The analysts believe that positive signals from the Persian Gulf talks are the driving force behind the price retreat. However, they emphasize that achieving an agreement between Iran, Oman, and Pakistan does not guarantee normalisation of oil flows through the Strait of Hormuz.

The normalization process would likely require the US to lift its blockade on Iranian ports and ease sanctions on Iran. While the US claims an average of 8-9 million barrels per day (b/d) of oil flow through the Strait of Hormuz, this number may be achievable only in short-term periods. In the longer term, several ship-tracking estimates suggest the figure is overly optimistic, with ranges from 2m to around 6m b/d.

Overnight data from the American Petroleum Institute (API) show a rise in US crude oil inventories by 4.2 million barrels over the past week. However, the products market tightened further, with gasoline and distillate inventories falling by 3.2 million barrels and 500,000 barrels, respectively.