Oil Traders Bet on New U.S.-Iran Deal Despite Tightening Market

Oil traders are increasingly betting on a new U.S.-Iran agreement to reopen the Strait of Hormuz, despite worsening market conditions. The push for a deal makes political sense, as Gulf producers have suffered from five months of severe disruption and crude exports through Hormuz were running at one-fifth of pre-war levels in July.

However, analysts caution that conditions are materially different from June, when a deal led to a large and rapid supply release. The terms of any new agreement will likely grant Tehran some influence over shipping, a concession the U.S. and its regional allies have historically refused.

The supply backdrop is tighter than in June, with only 80 million barrels remaining stored inside the Gulf, compared to 150 million in June. The Brent futures curve shows immediate tightness, not a coming glut, with October Brent trading at a $1.50 per barrel premium to November.

Diesel margins have reached record highs due to prolonged Hormuz disruption and Middle East supply constraints. A reopening of the strait would improve crude flows but wouldn't quickly fix diesel shortages, as the fuel takes time to work through the refining chain.