Crude swings on US-Iran talk hopes; supply risks keep upside alive

US oil prices slid for a second consecutive day on Wednesday amid renewed optimism that peace talks between Washington and Iran could restart, potentially paving the way for the release of crucial supply currently held up by the ongoing closure of the Strait of Hormuz.

However, prices reversed the early losses to trade in the green at the time of writing the report.

The market remains volatile as investors continue to assess developments from the Middle East.

According to experts, the supply situation in the oil market is likely to tighten further, which may boost prices again.

The war has severely disrupted traffic through the Strait of Hormuz, a vital channel for crude and refined product shipments from the Gulf to global destinations, particularly in Asia and Europe.

Transit remains precarious despite a two-week ceasefire, with the number of vessels moving through the strait significantly lower than the approximately 130 passages reported before the conflict, according to reports on Tuesday.

Meanwhile, discussions between US President Donald Trump and Tehran to conclude the war stalled over the weekend, though Trump indicated talks might restart this week.

However, complicating matters, the US military confirmed on Wednesday that a naval blockade enacted against Iranian ports has completely stopped all seaborne trade into and out of the country.

Diplomatic progress undermines crude's war premium

The price of West Texas Intermediate crude oil on the New York Mercantile Exchange was at $91.19 a barrel, down 0.1% from the previous close, while Brent oil was at $95.27 a barrel, up 0.5%.

According to Priyanka Sachdeva, a senior market analyst at Phillip Nova, oil prices are likely to be influenced more significantly by diplomatic progress than by events on the battlefield.

She noted that "Markets are increasingly reacting to headlines around negotiations rather than troop deployments."

"Each signal of renewed dialogue has been met with price declines, suggesting that ‌traders are systematically unwinding the 'war premium' embedded into crude earlier this month."

The urgent need for alternative crude supply is driving refiners to pay higher premiums for oil from regions like the US Gulf Coast and the North Sea.

This demand was highlighted on Tuesday when a cargo of WTI Midland, destined for Rotterdam, traded at a record premium of $22.80 a barrel over European benchmark prices.

Escalating risks from blockade

Separately, according to a Reuters report, a US official reported that an American destroyer prevented two oil tankers from departing Iran on the same day.

“There could even be a risk of renewed military escalation if the US were to prevent ships from entering or leaving Iran and Iran were to open fire in response,” Carsten Fritsch, commodity analyst at Commerzbank AG, said.

The market is facing a potential constraint on further oil supply.

This follows reports that the US will not extend a 30-day waiver on sanctions related to Iranian oil at sea, which is set to expire this week. 

Furthermore, a similar waiver on sanctions on Russian oil was allowed to quietly expire over the weekend.

Iran's oil exports have been significant recently, with March data from Kpler, an oil tanker tracking firm, showing 1.84 million barrels per day, and April figures so far at 1.71 million barrels per day. 

China has remained the primary purchaser.

Furthermore, a notable development occurred late last week: independent Chinese refineries are reportedly paying a premium for Iranian oil over Brent crude for the first time in several years.

India is also scheduled to receive its first oil shipment from Iran in seven years. 

The post Crude swings on US-Iran talk hopes; supply risks keep upside alive appeared first on Invezz