Oil Prices Swing on Conflicting Iran Signals

SUBSCRIBE SEARCH ARTICLES NEWS Oil markets remain volatile as traders weigh Iran war risks against improving regional supply. Image by Oxana Litvinova via iStock

Oil prices swung in a choppy session as traders parsed conflicting signs on the trajectory of peace talks between the US and Iran.

The global benchmark Brent settled below $104 a barrel after swinging in a more than $6 range. European gas futures also fell.

Traders are keenly focused on the status of peace talks between the US and Iran, after both parties expressed openness to diplomacy earlier this week. Futures pared some losses after Iran said the US response to its demands wasn't "satisfactory" and that no new developments had been reached.

The remarks cast doubt on earlier unconfirmed reports of progress that had pushed oil lower, the latest example of headlines whipsawing the market in recent sessions.

Bloomberg reported earlier on Tuesday that the two sides are reviewing the latest proposals from mediators on how to bridge their divides and avert another round of all-out war, citing a diplomat briefed on the matter.

"Conflicting headlines are whipping prices around this morning, and traders appear reluctant to buy the dip in the middle of the melee," said Rebecca Babin, senior energy trader at CIBC Private Wealth Group. "Expect the back-and-forth to continue, with technical flows amplifying the swings."

The uncertainty has fueled increasingly frantic trading, pushing some gauges of oil market volatility to the highest since late July.

Oil prices were also in focus on Tuesday as American voters head to the polls for the midterm elections with gas prices at the pump still above the psychologically-important threshold of $4 a gallon. President Donald Trump and the Republican Party are facing mounting political pressure over energy prices driven up by the war.

Earlier in the day, oil had advanced more than $1 after the Wall Street Journal cited American officials as saying that the US attacked Iran's Qeshm Island at the mouth of the vital Strait of Hormuz.

Trump said in an interview with Fox News on Tuesday that the US hit an Iranian anti-aircraft facility "very nicely," while Energy Secretary Chris Wright insisted strikes didn't impact flows through Hormuz.

Other bullish risks remain. Prices hit a six-month high in October as ships were targeted around Hormuz and traders showed reluctance to trust in talks, which have so far repeatedly failed to make the strait risk free.

The US president has repeatedly said he would resolve the conflict one way or the other, while threatening to resume strikes on Iran after the elections. Trump said the US is not looking to "kill lots of people," but added that "if we have to, we'll have to," he said in the Fox News interview about next steps in the war.

Physical market outlook

Robust exports from Persian Gulf producers are helping keep prices in check, with physical-market indicators showing signs of easing.

While Iranian exports remain effectively halted, flows from Saudi Arabia, the United Arab Emirates, Iraq and Kuwait climbed by 10% to more than 15 million barrels a day last month. The market for real-world barrels has begun to ease in turn, with Middle East oil market metrics indicating near-term supply is outpacing demand for the first time since July.

In another sign of the resurgent regional supply, the boss of Saudi Aramco said the company will maximize oil production this quarter as it looks to keep cranking up shipments.

Meanwhile, the nearest timespread for the regional Dubai benchmark, which helps set pricing for crude exported from the region, has entered into contango — the hallmark of a bearish market. Prices for the North Sea oil cargoes that underpin Dated Brent, the most cited physical oil benchmark, have also eased.

"We see crude oil markets settling into a higher-for-longer regime, with fair value for Brent crude oil remaining in the $90 to 100-a-barrel range, and potential for upside via risk premium so long as the Middle East and Russia-Ukraine conflicts remain unresolved," said Ryan McKay, senior commodity strategist at TD Securities.

Oil Prices

• WTI for December delivery was 0.4% lower to settle at $96.09 a barrel in New York.
• Brent for January settlement fell 1.1% to settle at $103.60 a barrel.
  

What do you think? We’d love to hear from you, join the conversation on the Rigzone Energy Network.

The Rigzone Energy Network is a new social experience created for you and all energy professionals to Speak Up about our industry, share knowledge, connect with peers and industry insiders and engage in a professional community that will empower your career in energy.