Oil climbs as US-Iran Hormuz talks stall, shipping traffic drops to six vessels
Brent crude hit $88 a barrel on Tuesday as President Donald Trump countered Iran's peace-deal conditions with his own compensation demands, dimming prospects for reopening the Strait of Hormuz and pushing shipping traffic through the waterway to just six vessels.
Diplomatic impasse
President Donald Trump on Monday responded to Iran's conditions for a peace deal by demanding Tehran compensate for people killed in wars, attacks and protests, in what multiple articles described as a rhetorical escalation. Iran's demands, which included compensation and an end to sanctions, were largely in line with the terms of a preliminary peace deal signed in June that has since broken down. Trump later added that the U.S. had control of the strait and had swept the strategic waterway for Iranian mines. Since the war began in February, Trump has repeatedly swung between threats of escalation and assertions that a peace deal was close.
- US-Iran war begins
- Preliminary peace deal signed, later breaks down
- Hormuz net exports average 3 million bpd, down from 4.4 million
- Houthis claim two attacks on Saudi Aramco Jazan refinery
- Trump counters Iran's conditions with compensation demands; oil jumps 5%
- Brent at $88, highest since July 31; Hormuz traffic at six vessels
Shipping collapse
Shipping traffic through the Strait of Hormuz fell to six vessels on Monday, compared with a 10-day average of about 11, Kpler data showed on Tuesday. Four commodity vessels, including two empty oil product tankers, entered the waterway, while two vessels, a small tanker carrying liquefied petroleum gas and another with residual fuels, exited. In pre-war days, about 130 to 140 ships typically transited the strait. By contrast, 25 vessels transited the Bab el-Mandeb strait on the Red Sea on Monday, broadly unchanged from the 10-day average of nearly 24. Analysts at Barclays said crude oil and refined product net exports through Hormuz averaged 3 million barrels per day in the week ending August 7, down from 4.4 million bpd the previous week.
- Previous week
- 4.4 million bpd
- Week ending Aug 7
- 3 million bpd
Oil and gas prices
Brent crude futures edged up to $88.00 per barrel and U.S. WTI futures to $82.45, both the highest levels since July 31, after the contracts rallied roughly 5% on Monday. Tim Waterer, chief market analyst at KCM Trade, said the optimism built up last week was being unwound, giving oil prices "a decidedly bid tone." German utility Uniper warned that gas prices would stay around €50 to €60 per megawatt hour as long as Hormuz remains closed.
These high prices are bad for our customers, bad for the industry and bad for our wealth. That is why we need a solution.
Saudi Aramco postponed the restart of its 400,000-barrel-per-day Jazan refinery to August 30 after the Houthis claimed two attacks on the plant on Sunday. Iraq raised the September official selling price for Basra Medium crude to Asia by $2.50 to minus $4 a barrel against the average of Oman/Dubai quotes.
Market and rate outlook
European shares edged higher, with the pan-European STOXX 600 up 0.1% at 661.39 points, lifted by energy stocks which jumped 1%, while travel and leisure fell 0.7%. U.S. stock index futures were subdued. Cleveland Federal Reserve Bank President Beth Hammack said overnight she felt the time was now to start raising interest rates gradually. Money market data shows traders almost evenly split between a rate hike and a pause in September, according to the CME FedWatch Tool. July consumer price data due Wednesday is expected to show a monthly rise of 0.1% in the headline reading and 0.2% for the core measure.
We think the risks are skewed towards a hot print, which would probably drive a rebound in rate expectations and, potentially, renewed worries about stagflation.
Tony Sycamore, a market analyst at IG, described the situation as a standoff over who blinks first, with oil potentially sitting in the $75-95 range while waiting for a breakthrough.
