Oil Settles Below $89 On Deal Hopes

Oil tumbled on optimism that the US and Iran will reach a peace deal, even as President Donald Trump signaled that the warring sides remain far apart in negotiations.

West Texas Intermediate crude fell almost 6% to settle below $89 a barrel. Trump said he was "not satisfied" with talks to end the almost three-month war, while the White House denied an Iranian state television report of a draft interim peace agreement.

Though Trump's comments dampened expectations for an imminent breakthrough, traders remained focused on broader prospects for deal to end the war and reopen the strait, which normally handles around a fifth of the world's oil and liquefied natural gas supply. Such an agreement would likely unleash a barrage of barrels into the sorely undersupplied oil market.

"There does appear to be some position unwinding accelerating the move lower, but more importantly there's a real reluctance to buy this dip," said Rebecca Babin, senior energy trader at CIBC Private Wealth Group.

Traders have grown particularly cautious about holding long exposure to oil ahead of headlines showing progress in ending the war, Babin said. Amplifying the move down, trend-following commodity trading advisers shifted their positioning on WTI from 82% long to 55% long, according to Kpler.

But key sticking points remain in the talks with Iran, including Tehran's $24 billion in frozen assets and its reluctance to allow free passage through the strait. At a White House cabinet meeting, Trump said no one nation would control the waterway.

For now, the strait remains essentially shut, subject to blockades by the US and Iran. Commercial shipping through Hormuz dwindled to only a few mostly Iran-linked vessels crossing on Wednesday after two supertankers exited the checkpoint the prior day.

Oil Prices

• WTI for July delivery fell 5.6% to settle at $88.68 a barrel.
• Brent for July settlement declined 5.3% to settle at $94.29 a barrel.