Oil erases gains amid expectations of an agreement on the Strait of Hormuz
Oil prices erased more than 2 percent of their gains on Tuesday morning, as hopes revived for a deal between the United States and Iran to end their conflict and reopen the Strait of Hormuz.
Pakistani Defense Minister Khawaja Asif told reporters in Islamabad that indicators over the past two or three days suggest the two sides are nearing some form of agreement, according to Bloomberg.
Ship traffic through the Strait of Hormuz fell on Monday to just six vessels, down from an average of about 11 ships per day over the previous 10 days, Reuters reported.
The benchmark crude prices had gained more than 5 percent on Monday, after Trump responded to Iran’s conditions for a deal by demanding that the Islamic Republic pay compensation for deaths caused by wars, attacks, and protests, a move that is likely to complicate efforts to reopen the Strait of Hormuz.
Ole Hansen, head of commodity research at Saxo Bank, said, “There is no clear path to resolving the crisis and fully reopening the Strait of Hormuz at present, which adds upward pressure on prices.” He added that significant supply disruptions remain in place.
In a note issued on Monday, analysts at Barclays said that net exports of crude oil and refined products through the Strait of Hormuz averaged three million barrels per day in the week ending August 7, down from 4.4 million barrels per day in the previous week.
Before the outbreak of the Iran war in late February, about one-fifth of global daily oil and liquefied natural gas (LNG) supplies flowed through the Strait of Hormuz.
Meanwhile, Saudi Aramco postponed the restart of its Jazan refinery, which has a capacity of 400,000 barrels per day, to August 30, after the Houthis announced two attacks on the refinery on Sunday.
Tim Waterer, chief market analyst at KCM Trade, said, “The risk of restrictions around both the Strait of Hormuz and the Bab al-Mandab remains very high. Even intermittent restrictions or the threat of further attacks keep insurance costs high and force longer shipping routes... Thus, energy flows are likely to remain constrained in the near term.”
On the other hand, Abu Dhabi National Oil Company (ADNOC) offered crude oil cargoes for sale in the spot market, in its eighth tender since the beginning of June, as part of the UAE state oil company’s efforts to move oil from within the Strait of Hormuz.
The Iranian Ministry of Oil said today that the country intends to restore 95 million cubic meters of daily gas production capacity by the end of September, as part of Tehran’s efforts to repair energy infrastructure damaged during the war with Israel and the United States.
A senior government official stated in July that Iran expects to recover approximately 100 million cubic meters of daily natural gas production capacity “in the coming months,” after air strikes knocked out about 230 million cubic meters of production since the war began in late February.
The ministry’s news agency quoted Minister Mohsen Paknejad as saying that 95 million cubic meters of lost production capacity would be restored following damage to gas processing facilities in Asaluyeh.
He noted that reconstruction is expected to be completed ahead of schedule, allowing the full return of lost production capacity to the production network. He added that some of the restored production capacity would not be available during the winter, meaning Iran must carefully manage gas supplies and consumption to avoid any challenges in meeting demand.
Diesel prices in the United States and Europe surged sharply during Monday trading following attacks on oil refineries in Russia, exacerbating global supply disruptions and raising concerns in the agricultural sector.
U.S. futures for low-sulfur diesel rose 7.4% to $4.19 per gallon, marking their largest daily gain since July 13, while European diesel refining margins—which measure the difference between fuel prices and crude oil costs—jumped by nearly 10%.
The spike came after confirmation of a Ukrainian attack on a refinery in Russia’s Tatarstan region. Bob Yawger, an analyst at Mizuho Bank, told Reuters that repeated strikes on refineries have significantly reduced fuel supply.
