Brent and WTI crude retreated on Thursday even after fresh U.S. strikes on Iran, as traders bet the next move could be de-escalation. Goldman Sachs expects Strait of Hormuz flows to normalize by end-July, while a Russian diesel export ban added a fresh supply wrinkle.
Oil prices fell on Thursday as markets weighed the impact of fresh U.S. strikes on Iran that could stall talks to end the war and delay the full reopening of the Strait of Hormuz. Brent crude futures fell $1.03, or 1.32%, to $76.99 a barrel by 0749 GMT. U.S. West Texas Intermediate crude lost 88 cents, or 1.2%, to $72.64 a barrel.
Strikes lifted prices before the pullback
The retreat followed a sharp move higher. Both benchmarks hit their highest levels since June 22 on Wednesday, and each rose more than a dollar in post-settlement trade after the U.S. military launched fresh strikes on Iran, triggering Iranian attacks on Kuwait and Bahrain.
The U.S. said the strikes were in response to Tuesday’s attack on three cargo ships in the Strait of Hormuz. They came hours after President Donald Trump said an interim ceasefire with Iran was over.
Traders weigh de-escalation
Rather than chase prices higher, the market held back. According to Reuters: “Traders are now reassessing the situation, especially as things are very much up in” concerning oil flows, said Tim Waterer, chief market analyst at KCM Trade. Trump said Iran had called and wanted to make a deal.
Even so, the shipping risk is real. Some war underwriters advised shipping companies to pause voyages through the Strait of Hormuz, while others reviewed policy terms after the renewed vessel attacks.
Supply outlook and a Russian export ban
Before the flare-up, prices had been falling as the market absorbed Middle Eastern supply released by the truce and signs of rising inventories. A fifth of global oil and liquefied natural gas supplies moved through the Strait of Hormuz before the war, which began February 28, giving Tehran its main leverage.
Goldman Sachs expects flows to normalize by end-July if negotiations continue, sanctions waivers are reinstated, and shippers receive security assurances, a path that requires Hormuz flows to rise by 6.6 million barrels per day. On the supply side, Russia banned diesel exports on Wednesday to support its domestic fuel market after Ukrainian drone attacks on refineries caused shortages and price spikes.
Source: Euronext Markets (Reuters)
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