Crude oil prices retreat from weekly highs as Strait of Hormuz talks advance
September WTI crude climbed to a one-week high before falling on reports of Oman-Iran negotiations, while Ukrainian strikes on Russian infrastructure tighten global refining capacity.
Crude oil prices retreated from a one-week high on Monday as diplomatic signals suggested a potential easing of tensions in the Middle East, though underlying supply constraints remain significant. September West Texas Intermediate crude (CLU26) rose by 0.19, or 0.23 per cent, while September RBOB gasoline (RBU26) fell by 0.0376, or 1.20 per cent. The mixed market movement reflects a tug-of-war between geopolitical risk premiums and emerging hopes for a resolution to the blockade of the Strait of Hormuz.
Prices initially surged after President Trump hardened his stance on Iran, demanding compensation for war damages and making a near-term deal appear unlikely. However, the market reversed course after Al Jazeera reported that talks between Oman and Iran had reached an advanced stage. Pakistani Defence Minister Khawaja Asif indicated that signals over the preceding two to three days suggested the parties were close to an arrangement that could reopen the waterway.
Despite the diplomatic optimism, traffic through the Strait of Hormuz remains severely restricted, tightening global supplies. Energy Aspects reported that an average of only five vessels are transiting the strait daily, a sharp decline from the 14 ships per day observed after the US and Iran reached a memorandum of understanding in June. The risk of renewed flare-ups persists, with a UAE tanker targeted by a missile on Saturday and Houthi militants claiming an attack on Saudi Arabia’s Jazan refinery on Sunday.
Concurrently, Ukraine has intensified drone attacks on Russian oil infrastructure, further constraining global refining capacity. Ukrainian forces attacked Russian refineries, tankers, and pipeline infrastructure at least 30 times in July, the second-highest monthly total since the war began in 2022. EA Analytics estimates that Russian crude-processing rates averaged 3.51 million barrels per day in July, the lowest level in 24 years, leading to widespread fuel rationing and export bans across Russia.
On the supply side, OPEC+ delegates approved a final production increase of 188,000 barrels per day for September, fully restoring the 1.65 million barrel per day cutback implemented in 2023. While this move adds to global crude availability, analysts note that achieving these targets may prove difficult amid renewed military activity in the region. Meanwhile, robust crude inventories in China, which stand at approximately 1.2 billion barrels, may dampen near-term demand from the world’s largest importer.
