Oil settles down after choppy session as investors weigh Hormuz talks
Both oil benchmarks fell to their lowest levels since Aug 10
Oil prices retreated on Wednesday (Aug 26) after a volatile trading session, as traders kept an eye on talks between Iran and Oman concerning the Strait of Hormuz, as well as a smaller-than-anticipated increase in US crude stocks. Brent crude futures declined by 74 cents, or 0.84%, to $87.84 a barrel, while West Texas Intermediate crude futures slipped by 13 cents, or 0.16%, to $82.23.
During the session, both benchmarks hit their lowest levels since August 10, anticipating an uptick in traffic through the strait. The drop in oil prices was tempered once the Energy Information Administration reported that US crude inventories rose by only 95,000 barrels to 428.9 million barrels during the week ending August 21, lower than the 597,000-barrel increase analysts had expected.
Saxo Bank's head of commodity strategy, Ole Hansen, noted that the market had shifted from assuming a high probability of prolonged disruptions to anticipating partial reopening, resolved shipping arrangements, and a reduced risk of renewed military confrontation. A credible agreement to restore Hormuz traffic could eliminate another layer of geopolitical premium.
Iran and Oman are currently discussing details of the agreement; a senior Iranian source stated that the two nations had agreed on sharing the waterway and its revenues. The Strait of Hormuz, which typically carries around a fifth of global oil and gas supplies, saw only five crude vessels transit the waterway on Tuesday, according to preliminary data from ship tracker Kpler, well below the 10-day average of 15 and pre-war levels.
Additionally, Pakistan and Iran made "significant progress" in talks, according to Pakistan's interior minister. Qatari Prime Minister Sheikh Mohammed bin Abdulrahman al-Thani is set to visit Teheran on Thursday to meet with Iranian officials regarding de-escalating tensions. However, Russia's war on Ukraine continues to impact energy supplies.
Russia's fourth-largest oil refinery and second-largest petrol producer, NORSI, halted crude oil processing on Wednesday following a Ukrainian drone attack. Russia is contemplating escalating missile strikes on Kyiv and other Ukrainian infrastructure if peace negotiations stall, according to Bloomberg News, citing three Kremlin sources.
A US senator sponsoring a broad-ranging sanctions bill against Russia expressed optimism that the House of Representatives would approve it next month, intending to impose a "sledgehammer" on President Vladimir Putin's war funding.
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