Crude Prices Plummet Amid Optimism of Strait Reopening Deal

Crude oil and gasoline prices plummeted on Tuesday as optimism grew that the US and Iran are nearing a deal to reopen the Strait of Hormuz, a key waterway for global energy supplies. The September WTI crude oil (CLU26) price fell by 5.69% to a three-week low, while the September RBOB gasoline (RBU26) price dropped 3.86%. A Qatari spokesman stated that a proposed resolution is being circulated between the US and Iran, but cautioned that a deal has not yet been reached.

Treasury Secretary Bessent added fuel to the fire by saying there's a chance of a deal on Tuesday or Wednesday to open the strait. This prospect, combined with an increase in Saudi oil exports through the Red Sea, is weighing on crude prices. The key Saudi export port of Yanbu had its busiest day on Monday since Houthi rebels began attacking shipping in the region.

Crude supplies in China remain robust, which may reduce Chinese crude purchases in the near term and add to bearish sentiment for oil prices. However, Ukrainian drone attacks on Russian oil infrastructure are providing some support for crude prices. Russia's refining capacity has plummeted due to damage from these attacks, with around 90% of Russian regions imposing fuel rationing or reporting supply issues.

OPEC delegates approved their final increase of +188,000 bpd in crude production for September, which might prove difficult to achieve amid renewed US-Iran military tensions. The group has now restored all of the 1.65 million bpd supply cutback it made back in 2023 and plans to hold output steady for the rest of the year.