Oil Steadies as Iran Assesses Fresh US Proposal to End the War
(Bloomberg) -- Oil steadied after losing nearly 8% in the previous session, as the US and Iran weighed a fresh push to end the war in the Middle East.
Brent was above $102 a barrel, while West Texas Intermediate was near $96. Washington has presented a one-page memorandum of understanding that will potentially lead to the gradual reopening of the Strait of Hormuz, a person familiar with the matter said. Iran is expected to respond in coming days.
Global energy markets have been upended by the war, with the vital shipping route largely closed since the end of February. At present, the chokepoint faces a double blockade, with Tehran obstructing traffic, while the US Navy prevents vessels calling at or leaving Iranian ports to squeeze the nation’s oil industry. Shipowners remain cautious, with the strait still virtually empty.
“Crude’s slump is once again wildly and prematurely optimistic: the only thing that matters for the market is how and when does the Strait of Hormuz reopen,” said Vandana Hari, founder of analysis firm Vanda Insights. “At this point, that prospect is less than a faint shadow on the horizon,” she added.
The US will end its military campaign and lift its blockade “assuming Iran agrees to give what has been agreed to, which is, perhaps, a big assumption,” President Donald Trump posted on social media on Wednesday, without giving details. “If they don’t agree, the bombing starts.”
The American president is under pressure to bring the war to a close as US retail energy prices surge, fanning voters’ concerns about affordability. In addition, Trump and Chinese President Xi Jinping are due to hold a summit in Beijing on May 14-15. This week, China’s top diplomat called for the swift reopening of Hormuz in a meeting with his Iranian counterpart.
“President Trump seems very keen to make sure that Iran does not torpedo his summit with Xi,” said Will Todman, senior fellow in the Middle East Program at the Center for Strategic and International Studies. “The US and Iran were never going to agree to a comprehensive deal in a rush, but agreeing to a framework buys them time and some calm.”
The latest US proposal came after Trump suspended a short-lived mission to offer safe passage for ships through Hormuz. Detailed talks over Iran’s nuclear program — central to Washington’s reasons for the war — would come later, the person familiar said, adding nothing has yet been agreed.
“A corner of the market will undoubtedly view a one-page memorandum to resume negotiations over the next thirty days as significant progress,” RBC Capital Markets LLC analysts including Helima Croft said in a note. “However, an MoU is unlikely to translate into an immediate resumption of shipping traffic and major production restarts.”
Meanwhile, US government data showed exports of oil products rose to a record last week as the country became a key supplier of fuel to the world amid the supply crunch caused by the conflict. Crude inventories fell.
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