Oil output rose this week amid expected resumption of peace talks between the United States and Iran. This followed a weekend of flare-ups over the Strait of Hormuz that served as a reminder of the fragility of their truce. West Texas Intermediate rose more than two percent to settle near $71 a barrel while Brent settled up at 1.6 percent.
Both Tehran and Washington will stand down on their heightened attacks for now, so that vessels can move freely through Hormuz. According to a US official who spoke on condition of anonymity, President Donald Trump said the two sides were set to resume peace talks in Doha, Qatar, on Tuesday.
According to a Telegram post from its Foreign Ministry on Monday, Iran promised to send a delegation of experts to Doha but would not meet directly with the US team. According to the post, Iran also said it would move forward with plans to control maritime traffic through the Strait of Hormuz even without Oman.
There was a drop in observed transits in the waterway over the weekend amid the unrest. Global investors, shipowners and insurers are closely watching activity in the chokepoint, which stands as a litmus test of whether a peace deal will endure and whether heavily disrupted supply chains can start to normalise.
“While traffic is morning through the Strait, I’m hearing it has slowed compared to last week because of the unrest,” said Dennis Kissler, head of Energy Trading at BOK Financial Securities Inc. “The smaller supplies are being priced in here, plus futures had been oversold, so a sharp correction is due,” Kissler said.
Oil has erased almost all of its wartime gains since the US and Israel first attacked Iran at the end of February. About a fifth of the world’s crude and liquefied natural gas traveled through the Strait of Hormuz before the conflict, and a resumption in negotiations offers the prospect of an eventual full reopening.
“The market feels increasingly comfortable treating these moves as tactical rather than structural. Until something fundamentally changes, traders are happy to fade both the rallies and the selloffs,” said Haris Khurshid, chief investment officer at Chicago-based Karobaar Capital LP. On Saturday, the Kiku, which was carrying Qatari oil, was attacked in the strait.
The very large crude carrier had loaded about 2 million barrels of oil in Qatar and last signaled its location off Fujairah, a United Arab Emirates port in the Gulf of Oman.
