Oil fell to extend a run of alternating between gains and losses, as traders looked for further signals about Middle Eastern flows.
Brent for December delivery dropped below $97 a barrel after rising almost 2 per cent on Wednesday, while West Texas Intermediate was near $89. Wall Street analysts and traders said crude flows from the region were closing in on pre-war levels, although fuel supplies have yet to recover to the same extent.
Crude rose for a third month in September, as Washington and Tehran failed to make headway toward a lasting peace agreement that would fully reopen the Strait of Hormuz. US president Donald Trump said that the US has total control of the waterway and will have an answer to Iran shortly.
For WTI, the spread between its two nearest contracts has narrowed, suggesting that near-term conditions have become less tight. The gap was less than $2 a barrel in backwardation on Thursday, compared with $4.68 two weeks ago.
“Reports of increased flows through Hormuz look directionally correct, even if the exact volumes are difficult to verify,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Group. “Time spreads remain backwardated but are well off their highs, suggesting those additional barrels are providing some relief to physical markets.”
Working out what Persian Gulf producers are sending to the market has been complicated by the Iran war, including attacks on merchant vessels as well as strikes by Tehran-aligned militants on Saudi Arabia’s East-West pipeline. Goldman Sachs Group Inc. estimates about 23 million barrels a day of oil left the Middle East in the last week — both out of Hormuz and through other export routes like the Red Sea. That’s in line with last year’s average.
Months of on-again, off-again negotiations to end the war, launched by the US and Israel in February, have left oil futures prone to large swings, making it harder for traders to position for big moves. There have also been significant shortages in fuel markets that are bolstering crude demand as refineries try to churn out as many barrels as they can.
US oil inventory data published Wednesday didn’t help that picture. Distillate stockpiles are at their lowest seasonal level ever, according to the Energy Information Administration, amid speculation over whether the White House will pursue an outright ban on diesel exports. Gasoline inventories in the US Midwest are at also the smallest level on record.
Energy secretary Chris Wright said on Wednesday that Europeans will make an announcement soon about “new diesel supplies that will come to market”. Meanwhile, Trump said he’s weighing potential negative impacts of an export ban on the fuel.- Bloomberg
