Oil rose for a second day as a lack of progress in US-Iran talks and signs of strong demand outweighed a resumption of flows through a key pipeline from top exporter Saudi Arabia.
Brent traded above $107 a barrel after ticking higher in the previous session, while West Texas Intermediate was around $94. Iranian officials have privately expressed pessimism about reaching a deal to end hostilities with Washington and reopen the Strait of Hormuz before US midterm elections in November, following US president Donald Trump’s rejection of a proposal to resume full traffic through the waterway in seven days.
Meanwhile, Saudi Arabia has restored about half the flows through its cross-country East-West pipeline, a crucial route bypassing the strait, after drone strikes halted operations earlier this month. Flows through the link to the Red Sea have reached at least 3.5 million barrels a day, according to people familiar with the matter.
“There’s still enormous geopolitical risk, but the market has learned that barrels keep finding a way out,” said Haris Khurshid, chief investment officer at Karobaar Capital LP. “We’re not seeing the kind of sustained repricing you’d expect if traders thought physical supply was about to deteriorate materially.”
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Crude is headed for a third monthly gain on the escalating US-Iran tensions, disruptions to the Saudi bypass route and potential diesel export curbs by Washington. Brent is up more than 70% this year, after more than seven months of conflict in the Middle East.
Trump denied an Axios report that he offered Iran sanctions relief and the release of frozen funds in exchange for concrete steps on its nuclear program. The Islamic Republic’s Foreign Minister Abbas Araghchi also refuted that Tehran was prepared to show flexibility on the nuclear issue, according to state news agency IRNA.
Brent faces greater downside than upside risk, Khurshid said. A credible US-Iran deal would potentially shave as much as $15 off prices, while $120 a barrel would require an actual supply disruption, he added.
However, key gauges of supply tightness have spiked in recent days in a sign of a clamor for barrels that can be delivered quickly. Meanwhile, fuel prices are surging as global refinery capacity remains hobbled.
Brent’s prompt spread — the difference between its two nearest contracts — has widened to more than $7 a barrel, from less than $1 at the end of last month. The bullish pattern, known as backwardation, is a classic indicator of a tight market. In Europe, Dated Brent — a critical physical-market benchmark — has been trading at a wide premium to futures.
Separately, TotalEnergies chief executive Patrick Pouyanné said a US ban on diesel exports being considered by Trump to curb high prices could backfire by pushing up gasoline costs. “It’s a bad idea” as it forces the nation’s refineries to cut throughput, potentially driving up domestic gasoline prices, he said. - Bloomberg
