The price of West Texas Intermediate (WTI) stood at approximately $91 per barrel. Brent crude fell amid hopes of achieving a diplomatic solution to the US-Iran standoff. The hopes for a peaceful settlement of the conflict eased the fears of possible supply disruptions that resulted in further decline of oil prices.
According to Bloomberg, the fall adds to the downturn from the six-month high reached by the end of October. The reason of the high level of prices was a hope that a Democratic victory at the midterms would ease tensions and allow avoiding escalation of the conflict.
Nevertheless, the oil market remains volatile due to conflicting messages coming from Washington regarding the likelihood of achieving a peace deal.
On the one hand, there were certain moments of hopefulness coming from the officials, and on the other hand, the US President Donald Trump expressed his conciliatory mood after CNN’s announcement that he believed further strikes on Iran were “highly unlikely” if the diplomatic process would progress far enough.
The attacks on Middle Eastern territories continue posing a threat to the rapid price recovery
While oil prices dropped, the state of security of the Middle East’s energy infrastructure and shipping corridors continued to be alarming. The UK Maritime Trade Operations informed that a tanker going through the Strait of Hormuz, which is one of the key oil transit points in the world, was hit by an unknown projectile over the weekend.
Also, the Iran-backed Houthis in Yemen destroyed the offices of Saudi Aramco in Riyadh. In response, Saudi Arabia’s forces struck two missile launchers. These events pose the risk that escalation of the conflict may lead to disruption of crude supplies and, hence, reverse the current drop in oil prices.
“Democratic victory doesn’t guarantee a diplomatic breakthrough,” Jorge Leon, the head of geopolitical analysis at Rystad Energy AS, stated, adding that escalation of the tensions may wipe out much of last week’s drop in oil prices.
Persian Gulf Crude Exports Press on Despite Continued Shipping Risk
Crude exports from the Persian Gulf have nearly returned to pre-war levels, despite the fact that the attacks on oil tankers passing through the Strait of Hormuz continue to pose risks to crude transportation.
Production of the Organization of the Petroleum Exporting Countries (OPEC) has grown last month to 88% of production of the same organization in February, according to the Bloomberg survey. Also, the production of Iranian oil declined because of a US naval blockade. This adds uncertainty to what markets expect regarding the volumes of oil supply.
According to Vivek Dhar, a commodities analyst at the Commonwealth Bank of Australia, the removal of the blockade may result in a further fall of oil prices. According to him, Brent crude may fall to $70-$85 per barrel if the deal manages to lift the blockade.
Furthermore, Dhar emphasized that the risk premium is present in the global benchmark price due to the continued possibility of the escalation of military tensions between Washington and Tehran.
Ukraine Attacks Sixth Russian Refinery in a Week.
Meanwhile, Ukraine attacked its sixth Russian oil refinery in seven days, continuing its campaign against energy facilities that support Moscow’s military machine.
The new attack comes as attempts to solve the Russia-Ukraine conflict diplomatically become increasingly active. It looks like Moscow is ready to conduct substantive talks in order to achieve an agreement, after months of diplomatic impasse. A high-level Russian delegation, including Deputy Foreign Ministers Sergei Ryabkov and Mikhail Galuzin, will join the talks with Ukraine, facilitated by the United States, in Abu Dhabi on Tuesday.
Also, market participants will pay attention to monthly oil market reports from three major forecasting organizations. The U.S. Energy Information Administration is supposed to publish its report on Tuesday, followed by OPEC on Wednesday, and International Energy Agency on Friday.
