Oil Slumps as Hormuz Transits Pick Up Amid Ongoing Talks


   
Karim Bastati
DTN Analyst

   VIENNA (DTN) -- Oil and product futures fell Wednesday (5/27) morning on 
news of a partial resumption of flows from the Persian Gulf as the U.S. and 
Iran were reportedly close to reaching a deal which would end the 
double-blockade of the Strait of Hormuz which has choked the world off more 
than 15% of oil and gas liquids supply since early March.

   By 08:30am ET, ICE Brent for July delivery was down $4.99 to trade near 
$94.59 bbl, and NYMEX WTI for July delivery fell $5.76 to $88.13 bbl.

   Downstream, NYMEX ULSD futures for June delivery retreated $0.1649 to 
$3.5497 gallon, and front-month NYMEX RBOB futures slid $0.1405 to $3.08 
gallon. 

   The US dollar index was little changed, down 0.05 points to 99.05 against a 
basket of foreign currencies.

   Iran's navy on late Tuesday said that 25 commercial vessels, including two 
VLCCs carrying a combined 4 million bbl of crude oil, have traversed the Strait 
of Hormuz in the past 24 hours in coordination with the country's armed forces, 
representing a significant increase from the daily trickle that has remained in 
the single digits for more than a month. Passage of vessels from "hostile 
countries", however, remained prohibited.

   Tehran on Wednesday said that negotiations were ongoing despite Tuesday's 
U.S. attacks which it considered a breach of the ceasefire. U.S. Secretary of 
State Marco Rubio claimed that a peace deal was just days away. The comments 
fueled optimism about a gradual return of energy supply from the Middle East, 
weighing on prices.

   Israel on Tuesday ramped up its attacks on Lebanon despite an existing 
ceasefire and expanded its ground offensive past the "buffer zone" it had 
previously set up in Lebanese territory. The heaviest bombing campaign in weeks 
dampened peace hopes, given that the cessation of Israeli attacks on Lebanon 
has remained a core Iranian demand since the start of the conflict.

   Still, market sentiment has since the weekend been markedly bearish, with 
oil prices on Monday closing at the lowest in more than a month. In Wednesday 
morning trade, crude oil futures slipped to the lowest intra-day price since 
April 21, following a report by Iran's state TV aired details from a draft of a 
memorandum of understanding with the U.S. The proposal allegedly includes a 
lifting of the U.S. naval blockade on Iranian maritime trade, a withdrawal of 
U.S. armed forces in vicinity of the country, and a commitment by Tehran to 
restore transit through the Strait of Hormuz to pre-war levels within a month.




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