Oil Climbs as Hormuz Deal Remains Elusive

Oil embarked on a steady climb higher as Iran and Oman remained short of a deal to reopen the Strait of Hormuz, while European diesel prices surged following an attack on a Saudi Arabian refinery near the Red Sea.

Brent futures settled near $87 a barrel, after climbing more than 5% over the previous three sessions. Iran said over the weekend that a deal was "very close," but reiterated on Monday that reopening Hormuz would require the US to end its blockade of Iranian shipping and compensate for damages.

Strikes across the region also kept the market on edge. Another tanker operated by Abu Dhabi National Oil Co. was targeted in Hormuz over the weekend, while Iran-backed Houthi militants in Yemen claimed an attack on Saudi Arabia's Jazan refinery. The kingdom's energy ministry said the fire was extinguished at Jazan early Sunday, without providing details on the cause.

The refinery strike added further strain to an already tight global diesel market, as disruptions to shipments through Hormuz compounded the impact of Russia's fuel export ban. Refined product prices were elevated across the board, with US diesel climbing higher while European diesel futures gained more than 10% in post-settlement trading. European natural gas futures also surged as much as 12%.

"A deal to re-open the strait does not appear to be imminent," said Hamad Hussain, a climate and commodities economist at Capital Economics. "Brent crude prices will probably remain volatile within the $80 to $90 per barrel range in the near term unless there are signs of a clear change in the status quo."

Prior to the war, about a fifth of the world's oil and natural gas was shipped through Hormuz to global markets. The market has been spared an extreme squeeze by a number of factors, including soft Chinese demand and the release of emergency reserves, but supply buffers have been worn perilously thin.

President Donald Trump signaled patience, telling Axios on Sunday that the US was now "low-keying it." The remarks followed weeks of Trump touting a deal and threatening strikes if talks failed. The pivot risks leaving flows through the Strait of Hormuz in a state of limbo.

Visible traffic through the strait remains slow. About five vessels are transiting each day, far below the roughly 14 ships a day seen after the US and Iran reached a memorandum of understanding in June, Energy Aspects founder and director of market intelligence Amrita Sen said in an interview with Bloomberg Television.

"For us to really see that this is changing or moving, we need to see those transits pick up," Sen said.

In a sign that Tehran may be likely to hold firm in its posturing over the strait, hard-liner Mohsen Rezaee was promoted to the country's top security post. A former commander in chief of the Islamic Revolutionary Guard Corps, Rezaee has been an advocate for full Iranian control over Hormuz.

"The bias stays bullish as long as the market is pricing the 'possibility' of disruption rather than the certainty of normalization," said Haris Khurshid, chief investment officer at Chicago-based Karobaar Capital LP. "Until we see actual flows normalize, I think geopolitical risk keeps a floor under crude."

Elsewhere, Trump extended a waiver of the Jones Act. The current waiver effectively exempts crude, among other products, from the law's requirements that cargo between US ports must be transported on US-flagged, -built and -owned ships.

Oil Prices

• WTI for September delivery added 5.1% to settle at $82.13 a barrel in New York.
• Brent for October settlement gained 5% to settle at $87.72 a barrel.