The WTI crude oil price fluctuated Wednesday, ultimately closing as a star-shaped candlestick pattern, indicating a lack of clear directional momentum. Contrary to former President Trump's earlier statements that a US-Iran agreement would be reached by Monday or Tuesday, the latest reports indicate that negotiators from Iran and Oman have agreed on a draft deal, which is now pending final approval from Iran's Supreme Leader. Senior Gulf officials have informed the media that the probability of a temporary US-Iran agreement being reached this Friday is roughly 50-50, a more cautious assessment than the optimistic signals previously released by the US side.
Oil prices had already fallen sharply by 10% in the first two trading days of this week, as the market priced in expectations of a deal between the US and Iran that would reopen the Strait of Hormuz. Despite tough rhetoric from Iranian officials, who stated that the Strait of Hormuz would not be reopened even if an agreement on its management were reached with Oman, as long as the US continues to violate agreements, the market appears to believe that Trump will once again "TACO," securing a deal to alleviate upward pressure on oil prices before attempting to save face through rhetoric. However, until the final decision is made, everything remains uncertain. Iran's negotiating position is notably strong, and the situation took a dramatic turn when Yemen's Houthi group claimed a missile attack on a Saudi oil tanker on Wednesday afternoon, causing a brief spike of over $1 in oil prices. This highlights that geopolitical risks remain significant, and the outcome of the talks will lead to vastly different directions for oil prices.
The EIA report showed a 2.479 million barrel increase in commercial crude inventories, but a decline in strategic reserves. Gasoline and distillate inventories saw significant draws, indicating a tight overall inventory situation across all categories. Oil prices have now fallen back to the low range seen since the US-Iran conflict erupted, awaiting the final outcome of negotiations. From a risk-reward perspective, short-term chasing of further downside is not recommended; instead, opportunities for participating in a rebound from lower levels could be considered. Given the high volatility, strict risk management and cautious participation are advised.
Market Dynamics
On Wednesday, WTI crude oil futures fell by $0.55, or 0.73%, to close at $75.22 per barrel. Brent crude oil futures rose by $0.09, or 0.11%, to close at $79.45 per barrel. The INE crude oil futures fell by 0.58%, settling at 510 yuan per barrel. The US Dollar Index fell 0.17% to 99.69. The HKEX USD/CNY rate fell 0.09% to 6.7301. The US 10-Year Treasury Note was flat at 108.91. The Dow Jones Industrial Average rose 0.49% to 54,349.12.
Middle East Crude Oil Premiums Decline
Spot premiums for Middle East benchmark crudes, including Oman, Dubai, and Murban, generally declined on Wednesday, driven by the growing expectation that the Strait of Hormuz may soon reopen. Trump's comments about "very good discussions" with Iran and the US seeking to announce a deal on Wednesday further boosted optimism about supply relief. However, late in the Asian trading session, the Houthi claim of attacking a Saudi oil tanker in the Red Sea partially offset these gains, reminding the market that geopolitical risks remain volatile and improvement in the situation is still challenging. In the spot market, India's MRPL purchased 1 million barrels of Oman crude via tender at a premium of around $3 per barrel to Dated Brent, while Indian Oil Corporation bought 4 million barrels of West African crude from suppliers including Chevron. The Dubai cash-to-swaps premium fell by 68 cents to $6.85 per barrel. Overall, if a formal Hormuz agreement is reached, spot premiums for Middle East crude may face further downward pressure, but risks in secondary shipping lanes like the Red Sea continue to limit the downside for oil prices.
Houthi Strike on Saudi Tanker Escalates Red Sea Risk
Yemen's Houthi group stated that they used a ballistic missile to attack a Saudi oil tanker named "Wafa" in the Red Sea north of Yanbu, claiming a direct hit. This is the eighth Saudi oil tanker the Houthis have claimed to attack since their blockade operation began on July 22. The group also claimed to have forced 29 other Saudi oil tankers to turn back while sailing in the Red Sea and the Arabian Sea.
US Diesel Exports Hit Record
The US exported a record volume of distillate fuel last week, while domestic inventories fell again, indicating that the global battle for diesel is increasingly drawing down American supplies. According to EIA data released Wednesday, distillate fuel exports rose to 1.9 million barrels per day, the highest on record, surpassing the previous peak set in May. Distillate fuel primarily includes diesel, heating oil, and other products. The global diesel market was thrown into chaos in the early stages of the US-Iran conflict, as crude and product shipments were unable to pass through the Strait of Hormuz, disrupting global fuel supplies. Subsequent months of Ukrainian attacks on Russian refineries further exacerbated supply pressure. This has positioned the US as one of the few countries with ample diesel production capacity to produce and export fuel to the world. US diesel exports have now exceeded 1.5 million barrels per day for five consecutive weeks. Despite refiners running at full capacity to produce diesel, fuel inventories are still declining. On a seasonally adjusted basis, distillate fuel inventories last week fell to their lowest level for the same period since 1996.
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