Oil prices ease as US-Iran tensions cool
Oil slipped after the US paused strikes on Iran, fueling hopes that the conflict could be resolved diplomatically and that Middle East energy flows could return to normal.
RastinewsOil fell nearly 1% on Tuesday as hopes grew that a pause in US strikes on Iran could pave the way for a diplomatic resolution to the conflict and a return to normal energy flows from the Middle East.
Brent crude futures dropped 0.6% to $87.82 a barrel, while US crude (WTI) fell 0.8% to trade at $81.95. Both contracts touched their lowest levels in more than a week earlier in the session, with losses reaching as much as 1%.
US President Donald Trump said Monday that "positive talks" were underway with Iran and that a deal could be reached. But he warned the US would resume strikes if negotiations failed, while Iran issued similar threats of retaliation.
"For now, the discovery of an off-ramp that avoids escalation has taken some of the pressure off prices and eased concerns over Houthi attacks on Saudi infrastructure. But the situation remains highly fluid," IG analyst Tony Sycamore told clients.
Afrah al-Zouba, foreign minister-designate of Yemen's internationally recognized, Saudi-backed government, said the Houthis in Yemen aim to replicate Iran's leverage over shipping in the Strait of Hormuz by exerting similar control over traffic through the Bab el-Mandeb Strait.
"It's debatable whether the Houthis have the military capacity to enforce a comprehensive naval blockade, especially given that Saudi Arabia would likely launch intense strikes against them in response. That makes it even less certain. But there's no doubt that shipping traffic through the Red Sea and the Strait of Hormuz has fallen sharply," said Marex analyst Edward Meir.
"One of the main reasons prices aren't even higher right now is the drop in demand, particularly in Asia," Meir added.
Barclays analysts said in a note Monday that oil flows through the Strait of Hormuz remained weak. Net exports of crude and refined products through the strait averaged 2.9 million barrels per day in the week ending July 24, down from 5.9 million barrels per day the previous week, the analysts said.
Meanwhile, a preliminary Reuters poll published Monday showed US crude and gasoline inventories were expected to have fallen last week, while distillate stocks were forecast to rise.
Source: Bloomberg