Truce Talks and Hormuz Concerns Weigh on Oil Prices
Oil prices took a hit on Friday as the market digested the ongoing truce talks between the US and Iran, along with concerns about the Hormuz Strait traffic. The WTI discount to Brent widened to its highest level since May for a third straight day, while gasoline futures fell by around 4%. According to Ritterbusch and Associates, the diesel-ban conversation is also putting pressure on refinery margins, which could lead refiners to process less crude.
The Hormuz Strait traffic remains a major concern, with only nine vessels passing through on Thursday, down from 14 the day before. This is significantly lower than the pre-war average of around 125 large commercial vessels per day. Saudi Aramco has increased exports through Hormuz despite drone attacks on the East-West Pipeline halting shipments from the Red Sea port of Yanbu earlier this month.
The market is also waiting to see if the US-Iran talks in New York will produce concrete steps towards reopening the Strait or simply be another round of headlines that fade by Monday. Iran's nuclear position makes the gap between the two sides visible, and Hormuz vessel traffic at nine against a pre-war average of 125 suggests the physical market has not priced the diplomacy the way crude has.