Oil Falls As Iran Deal Hopes Rise

Oil plummeted after US President Donald Trump said the US is in the "final stages" with Iran, raising expectations for a near-term restart of energy flows through the critical Strait of Hormuz.

West Texas Intermediate fell by 5.7% to settle near $98 a barrel, with Trump's comments on Wednesday to the White House pool stoking hopes for a deal between Washington and Tehran. Prices had whipsawed earlier on headlines tied to negotiations to end the war.

"One has to take these sorts of headlines with a pinch of salt," said Fawad Razaqzada, market analyst for global macro at StoneX. "Trump has made so many claims of this nature during this conflict, and invariably the opposite has been true. Let's see if this time it is different."

Now in its 12th week, the war has choked traffic through the strait, driving global energy prices and inflation higher. Still, traders have consistently priced in the possibility of an abrupt deescalation, including a deal under which Iran reopens the key shipping lane and unlocks millions of barrels stuck in the Persian Gulf.

The call skew for both WTI and Brent, or the premium traders are willing to pay for options betting on a further rally, has shrunk to the smallest level since before the conflict.

Some nascent signs of higher flows through the strait are also siphoning risk premium out of crude prices. In recent hours, three oil supertankers appeared to attempt to cross the waterway, the latest in a small uptick in traffic after a relative lull in recent days. Iran claimed 26 ships passed in the last 24 hours, though it has previously suggested far larger transit numbers than ship-tracking indicates.

Trump said on Wednesday "we'll see what happens" with Iran, adding that a deal will be made or "we're going to do some things that are a little bit nasty, but hopefully that won't happen." Trump has repeatedly threatened to restart strikes on Iran if it doesn't agree to his peace terms.

Iran is reviewing the US's new draft in response to Tehran's 14-point proposal and is yet to give a response, the semi-official Tasnim news agency reported, citing a source close to the country's negotiating team. Earlier in the day, Iran warned it would retaliate beyond the Middle East if the US or Israel attacks it again.

On Tuesday, a massive Brent crude put options bet equivalent to 134 million barrels traded in a single block, which would profit as much as $129 million if July futures tumble roughly 15% from their current level in a week. That rattled a market already on high alert for unusual flows.

Trump's comments overshadowed relatively lackluster US inventory data from earlier in the session. Crude stockpiles slid by about 7.9 million barrels, broadly in-line with earlier estimates from a widely followed industry group. Gasoline demand ticked up only marginally week-on-week, while exports were shy of recent record-high levels from a period when overseas buyers stocked up on American supplies to offset disruptions to Middle East flows.

At a meeting in Beijing on Wednesday, Chinese President Xi Jinping renewed calls for a ceasefire in the Middle East during talks with Russian counterpart Vladimir Putin, state news agency Xinhua reported, as the two leaders sought to reinforce ties amid the wars in Iran and Ukraine.

Oil Prices

• WTI for July delivery dipped 5.7% to settle at $98.26 a barrel in New York.
• Brent for July settlement slid 5.6% to settle at $105.02 a barrel.