The Commodities Feed: Oil slumps as the US and Iran pause strikes
Lead — Oil prices faced a sharp decline as tensions between the US and Iran showed early signs of easing, with both parties halting military actions for the time being. Per the full note from ing-think, Brent crude fell over 7% and briefly dipped below $90 per barrel amid the announcement, reflecting a market desperately seeking stability. Despite this potential de-escalation, doubts linger regarding the permanence of this truce, particularly with ongoing assaults from the Houthis on Saudi Arabia's infrastructure complicating the overall landscape. The absence of a robust recovery in vessel flows through the critical Strait of Hormuz adds a layer of uncertainty as traders recalibrate their strategies in response to these developments.
What the desk is arguing
The desk argues that the pause in military action between the US and Iran may not lead to a sustainable recovery in oil prices without clarity on maritime security. The recent drops in oil prices, notably Brent plunging below $90 per barrel, underscore the market's sensitivity to geopolitical developments, as noted in the report by ing-think.
Significant disruptions in oil exports, particularly from the Houthis' renewed attacks on Saudi facilities and halted loadings at key Russian terminals, highlight ongoing supply chain vulnerabilities. The potential for increased vessel movement through the Strait of Hormuz depends on both US-Iran relations and overall regional stability, which remain tenuous at best.
Where it sits in our coverage
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How other firms see it
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Key takeaways
- 01Brent crude prices fell over 7%, dipping below $90 due to a pause in US-Iran strikes.
- 02Ongoing attacks by Houthis on Saudi infrastructure signal continued geopolitical risk.
- 03Market recovery is contingent on clarity regarding maritime security in the Strait of Hormuz.
- 04Recent disruptions in Russian oil exports further complicate global supply dynamics.
Market implications
Watch for near-term movement in oil prices closely tied to developments in US-Iran negotiations and Houthi attacks. A sustained price recovery seems unlikely until there's a clear pathway for safe vessel navigation through the Strait of Hormuz following military de-escalation.
Risks to this view
Any sudden escalation in military actions by the US or Iran could negate the current price trends and lead to further volatility in the oil market. Additionally, if the Houthis' attacks lead to significant disruptions in Saudi oil exports, this could also rally prices unexpectedly.
Articles The Commodities Feed: Oil slumps as the US and Iran pause strikes Published 03:09 Commodities daily Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Oil prices fell sharply in early trading as the US and Iran refrained from further military action, offering the first tangible signs of a potential de-escalation in tensions Warren Patterson and Ewa Manthey Energy – Saudi energy infrastructure targeted The price action in oil this morning clearly reflects the market's desperation for positive news. After 13 days of strikes, the US has held off on further strikes over the last 2 days, while Iran also paused retaliatory attacks. The recess has seen Brent retreat aggressively, down more than 7% at one stage, briefly below US$90/bbl.
While this is the first tangible signal of de-escalation, the reasons behind it are less clear. There’s little explanation from the US. Also, it hasn’t yet led to any meaningful pickup in vessel flows through the Strait of Hormuz.
We’re unlikely to see any recovery until there’s clarity on whether this de-escalation is more permanent and whether vessels can navigate the strait without fear of attack. While there are signs of de-escalation between the US and Iran, the Houthis in Yemen stepped up their attacks on Saudi Arabia. The Houthis claimed to have attacked a number of targets in the country, including energy facilities in Jazan and Yanbu.
Amid disruptions in the Strait of Hormuz, Saudi Arabia has been exporting the bulk of its crude oil from Yanbu on the Red Sea. Disruptions are piling up. Oil loadings at Russia’s Sheskharis terminal in Novorossiysk have reportedly been halted since 21 July.
Bloomberg notes the facility has shipped roughly 650k b/d this year. This coincides with the suspension of oil loadings at CPC terminal, which had been shipping around 1.7m b/d in recent months. These disruptions come amid a surge in Ukrainian drone attacks on Russian energy infrastructure.
The latest positioning data, which comes with a lag, unsurprisingly shows that speculators continued to add to their net long over the last reporting week. They bought 22,192 lots to leave them with a net long of 192,031 lots as of last Tuesday. This move was exclusively driven by shorts covering, rather than fresh buying entering the market.
Meanwhile, speculators also increased their long positioning in ICE gasoil, amid the growing tightness concerns facing the middle distillate market. Speculators bought 12,665 lots to leave with a net long of 84,540 lots as of last Tuesday. The drop in Russian diesel exports has been a key contributor to the tightness in the middle distillate market.
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