Crude prices are higher on Monday, but the initial bump shows some signs of fading, as it was based on a rumor. However, the overall upward trend might reassert itself through the week as the situation in the Middle East becomes more complicated.
Last week, crude prices dropped precipitously on hopes of a new deal to reopen the Strait of Hormuz. But the price climbed quite a bit going into the weekend as traders feared an escalation while markets were closed. Although there was no dramatic resumption of military strikes, the impasse has deepened, and analysts are once again raising their price forecasts for Brent.
The Two Deals Sowing Confusion
There are two deals that are benign negotiated in parallel, and with two separate outlooks. The first is a discreet agreement between Iran and Oman on technical aspects of shipping lanes. Reportedly, Iran is pressuring Oman to charge tolls, but the latter is not budging on that count. Either way, the toll issue isn’t an impediment for an agreement on shipping through the Strait of Hormuz between the two countries. Media reports talking about “progress” or a deal being near in recent days have been referring to these negotiations.
The other issue is between the US and Iran. While a deal between Oman and Iran could be helpful in advancing US-Iran negotiations, Iran is refusing to reopen the Strait until it reaches a deal with the US. Meanwhile, US forces continue to blockade shipments from Iran until the Strait is reopenend. However, it’s worth noting that press reports that a significant amount of Iranian crude shipments are still managing to get through.
Deal Increasingly Remote
Over the weekend, Iran issued a statement clarifing its demand that need to be met before agreeing to reopen the Strait. Those include “concessions” from Washington, reparations, unfreezing assets and a withdrawal of US forces from the region. In the prior failed MOU, those elements were set to be negotiated after the Strait had reopened, so the latest position implies a significant hardening by Iran.
US President Donald Trump gave a brief interview to Axios on Sunday, saying that the US was “low-keying it” Iran negotiations, and focused on economic pressure on Tehran. The comment was notable after the UKTMO reported a tanker being struck in the Strait of Hormuz on Saturday.
Will the Situation Re Escallate?
In the past, the US has launched airstrikes across Iran after attacks on ships trying to transit the Strait. Early on Monday, there were reports of another tanker being hit, which raised the risk that miliatry operations would resume, pushing up crude prices. However, the market is still pricing in only a risk, and if the US launches renewed airstrikes, the price could bump higher.
However, if no strikes materialize, even if there is no progress on negotiations, crude prices could fade in the coming days. Analysts are raising their price forecasts for crude, with Citi being the latest, projecting Brent at around $70 by the end of the year. That’s up from the $60-65 price forecast it gave earlierin the summer. But, it’s still below the $83 price early on Monday, suggesting that Brent could ease unless there is a re-escallation in the conflict.
Comments
Log in or sign up to join the conversation.