Oil Tumbles on Diplomatic Optimism

by Bloomberg | M. Gindis, A. Longley, P. Burkhardt
Click here tor read this article at Rigzone.com
*this article was not written by Roseland Oil & Gas

Oil notched its worst three-day stretch in more than six years as traders glommed onto growing signs of deescalation in the Middle East conflict, with both the US and Iran continuing to hold off on attacks.

Brent crude tumbled roughly 16% across the past three sessions, to settle around $84 a barrel on Tuesday. The last time the global benchmark experienced such a slump was in April 2020 when threats of an oil glut were rattling markets. West Texas Intermediate closed near $79.

The commodity fell as traders positioned for potential progress toward peace talks as a meeting between President Donald Trump and Israeli Prime Minister Benjamin Netanyahu took place in Washington, laying the ground for further diplomacy. Trump earlier told reporters aboard Air Force One there was a “good chance” talks with Iran would make progress.

“Today’s action is being driven by renewed hopes for an MOU 2.0 — or some broader framework for deescalation between Iran and the Gulf Cooperation Council,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Group, referencing a previous memorandum of understanding that has since unraveled. “It’s a move driven far more by positioning and sentiment than by a meaningful improvement in physical crude flows.”

Observable traffic through Hormuz was muted early Tuesday, though some vessels appeared to have passed without transponders on. Tracking the exact amount of oil crossing has been complicated by the dark transits.

Crude has been whipsawed this month, initially surging as hostilities between Washington and Tehran re-escalated and the war spread to the Red Sea, then slumping when tensions eased in recent days. Traders remain cautious as tanker traffic through the Strait of Hormuz has yet to normalize.

Several technical factors have been amplifying the recent selloff. Trend-following commodity trading advisers slashed long positions to sit at 62% long in Brent on Tuesday, compared with 73% at the end of Monday’s session, according to data from Kpler’s Bridgeton Research Group, and are poised to liquidate more bullish bets if prices continue to slide. Futures are recalibrating after the relative strength index spent much of last week in overbought territory, leaving room for further downside.

Still, tensions remain in the region. The oil price drop comes a day after traders were poring over satellite images of Saudi Arabian energy sites that showed smoke in several locations after recent attacks on the kingdom. There was little clarity on the impact of the attacks and the government has yet to comment on its energy production after Yemen’s Houthi militants said they would resume striking the country.

“We remain cautious of any potential deal that does not concretely settle the Hormuz topic, given disagreements over management of the Strait led to Iranian aggression and an early failure of the prior MOU,” said Ryan McKay, senior commodity strategist at TD Securities.

Elsewhere, the Organization of the Petroleum Exporting Countries and major producers, known as OPEC+, expects to pause oil-production quota hikes after a final increase in September as the group continues to evaluate the fast-changing supply impact of the Iran war, two delegates said.

Macquarie Group Ltd. warned a glut is likely to return before the end of year as Washington faces mounting pressure to end the Iran conflict before midterm elections. As soon as a deal is reached, the oil market would be “significantly” oversupplied, with a daily surplus of 2 million barrels expected in the fourth quarter, it said.

Oil Prices

Crude futures posted their biggest three-day decline since 2020 as hopes for diplomacy with Iran reduced supply concerns.

• Brent for September settlement fell 4.8% to settle at $84.09 a barrel in New York.
• WTI for September delivery shed 4.1% to close at $79.26 a barrel.
   

by Bloomberg | M. Gindis, A. Longley, P. Burkhardt
Click here tor read this article at Rigzone.com
*this article was not written by Roseland Oil & Gas