Hormuz Reopening Could Lower Oil Prices, But Diesel Shortages Remain

Iranian President Masoud Pezeshkian said Tehran wants to revive the earlier ceasefire understanding before the November midterm elections, and not have the conflict continue into the election period.

The U.S. and Iranian negotiators are exploring a phased agreement, with one proposal suggesting Iran would reopen the Strait of Hormuz while Washington lifts its economic blockade of Iranian ports, potentially alongside further measures on frozen Iranian assets.

The reopening of Hormuz would improve the flow of crude and refined products and remove part of the risk premium that has been built into prices. However, the market has already seen diplomatic optimism fade before, and until shipping returns to normal, traders have little reason to remove all the premium.

The U.S. inventory build tells only half the story, with commercial crude stocks rising 2.969 million barrels to about 426.4 million versus expectations for a small draw. However, gasoline inventories fell by around 1.69 million barrels, while distillate stocks declined by roughly 430,000 barrels.

The difference is becoming increasingly important because the bottleneck is no longer simply how much crude exists but rather how much usable fuel refiners can produce and where those barrels can be delivered.