Oil falls on increased Gulf supply and hopes for US-Iran talks

Oil prices slipped on Wednesday as Saudi Arabia reinstated crude supply through a crucial pipeline to the Red Sea and expectations grew for a diplomatic resolution to the US-Iran conflict, discussed at the UN in New York. Brent crude futures slipped 7 cents, or 0.07%, to $99.18 a barrel by 0119 GMT, while West Texas Intermediate futures declined 35 cents, or 0.39%, to $90.17 per barrel.

President Donald Trump warned of potential “annihilation” of Iran but also said his envoys Steve Witkoff and Jared Kushner had productive talks with Iranian mediators to end the war. Trump expressed optimism about the prospects of a deal, stating he believes there is significant momentum for them to reach an agreement.

The market sentiment improved due to increased oil supply from Saudi Arabia and hopes for a resolution to the nearly seven-month conflict. According to Tim Waterer, chief analyst at KCM Trade, "The market is currently feeling more constructive about the global oil supply picture than it was a few weeks ago." Iran reported that a Saudi Arabian oil tanker was struck in the Strait of Hormuz, but the meeting between US and Iranian delegations in New York offered a glimmer of hope to traders.

Despite the ongoing tough rhetoric, including threats of “annihilation,” traders were pricing in the potential for talks.

On Tuesday, Saudi Arabia resumed operations on its East-West Pipeline to the Red Sea, according to sources familiar with the matter. The pipeline had been shut since September 11 due to drone attacks, which Saudi Arabia blamed on Iraqi militia, halting crude loadings at its Yanbu port. Since the US-Israeli war on Iran disrupted oil flows from Saudi Arabia and its Gulf neighbors through the Strait of Hormuz, Riyadh has utilized the pipeline to reroute around 4 million barrels per day, roughly 4% of global supply, to Yanbu.

Iraq has also ramped up its oil exports, with its oil minister, Basim Mohammed, stating that the country is now exporting more than 3 million barrels per day and expects to increase exports via Turkey to over 600,000 barrels per day. Data from shiptracking firms Vortexa and Kpler indicated that Iraqi crude exports in August were 2.3 million and 2.17 million bpd, respectively, up from July's figures but still below the pre-war levels of 3.7 million and 3.362 million bpd in February.

US crude inventories, however, rose by 1.8 million barrels in the week to September 18, contrary to analysts' expectations of a decline. The official weekly inventory figures from the US Energy Information Administration will be released at 10:30 a.m. ET (1430 GMT).