The Deal Is Gone and Sellers Still Cannot Break the Bid
The temporary U.S.-Iran agreement that was meant to ease the conflict and reopen the Strait of Hormuz expired this week. Neither side moved to begin new talks. That left the oil market without the one development that could quickly remove the risk premium.
On Thursday, only seven commodity ships crossed the strait. That was half the number from the previous day and far below normal traffic. Ship-tracking data has shown traffic running at very low levels for weeks. Before the fighting began earlier this year, about one-fifth of global oil and gas supplies moved through the waterway.
The major Gulf producers remain limited by the restricted passage. Iran’s own exports were already under pressure from a U.S. naval blockade. Extra oil is moving through pipelines and routes outside the Persian Gulf, but those barrels are not filling the gap.
President Trump said Friday the United States would begin an economic operation against Iran to force Tehran to abandon its nuclear program. Iran came back with its own warning. That is not the kind of exchange that leads to a reopened shipping lane.
Late selling hit on reports that Iran had discussed ending the fighting from a position of strength. The market sold the headline and came right back. One conversation about ending a fight is not the same as ending it. Buyers still own the supply side of this trade. Bears are waiting on diplomacy, and diplomacy is going nowhere.
Refined Products Are Giving Crude a Wider Base
Gasoline and diesel futures also finished higher Friday. September gasoline gained more than $0.08 per gallon and diesel posted smaller but steady gains. The gap between diesel futures and crude oil rose above $100 a barrel for the first time. U.S. refiners are making strong profits and the products side of the complex is bidding for barrels alongside the supply trade, not just riding it. The bid is coming from more than one direction now.
