Oil traders are buying into the Trump administration's latest claims that a deal is near with Iran, pushing both the international and U.S. benchmarks down sharply this week.
In Tuesday's latest developments, Treasury Secretary Scott Bessent said there was "a chance" that a deal would be struck "today or tomorrow." His comments come after President Donald Trump called off strikes on Iran over the weekend, claiming " perimeters of a deal" to reopen the Strait of Hormuz.
The price of most-active futures for Brent crude oil and West Texas Intermediate both settled down more than 5% Tuesday. Brent fell to $79.36, with WTI at $75.77. It's the first time Brent futures have settled below $80 since July 10.
While we've heard such optimistic talk many times before, only for hostilities to resume, a new report that the U.S. has depleted "virtually all" of its land-based, long-range tactical missiles, could explain at least some of the renewed optimism.
Reuters reported early Tuesday that the U.S. has nearly used up its surface-to-surface weapons, called Army Tactical Missile Systems (ATACMS) and Precision Strike Missiles (PrSM). These are preferred over munitions dropped by jets or fired from sea because they can be deployed quickly to avoid detection.
When Barron's asked the White House about the report, the press office provided earlier comments from President Trump and a spokesperson saying the U.S. has ample munitions, but didn't specifically address the reported shortage of these specific missiles.
RBC Capital Markets head of global commodity strategy Helima Croft says the reported shortage could be putting more pressure on the administration to make a deal. "These munitions constraints may be incentivizing the White House to take a deal that seemingly meets Iran's core demands for Hormuz control," she said.
Despite Bessent signaling an imminent breakthrough, there were also signs of renewed fighting. The United Kingdom Maritime Trade Operations reported early Tuesday that a cargo vessel was struck by an unknown projectile as it was traversing Omani territorial waters in the Strait of Hormuz. It also reported threats to two oil tankers in the strait.
Meanwhile, TD Securities global head of commodity strategy Bart Melek calls the recent drop in oil prices "likely an inappropriate response on several fronts." There is less oil loaded up on tankers and ready to pass through the strait than when it last reopened in June, oil production is muted, and there is no indication that Iran is willing to give up control of the waterway.
"Given that prices have dropped sharply in recent days and a resolution to the conflict is not on the horizon, we expect both long exposure and prices to move up robustly in the coming week," Melek wrote in a Tuesday note.
"Even an imminent opening of these seaways would not prevent a significant erosion of global inventories due to shipping lags, production stoppages," he told Barron's.
Looking further out, Goldman Sachs is expecting a de-escalation in the Middle East by the end of the year, with Brent crude oil prices averaging $80 a barrel in the fourth quarter.
Don't count on a smooth road to a more durable peace deal though. "It's quite plausible that we continue to make two steps forward and one step backward," the firm's head of oil research, Daan Struyven, told Barron's.
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