Oil Weakens, Is Peace on the horizon?
Oil prices weakened slightly after a three-day rally, following Israel and Lebanon's agreement for a conditional ceasefire if Hezbollah also halts attacks. This move has the potential to ease a major stumbling block in Washington-Tehran diplomacy, although the market believes its implementation is far from certain. Brent fell towards US$97/barrel and WTI held around US$95/barrel, after rising nearly 10% in the first three sessions of the week.
However, uncertainty over the US-Iran deal remains high. Washington and Tehran reportedly have a rough framework for extending the two-month ceasefire and reopening Hormuz, but detailed negotiations are still ongoing and clashes are ongoing. Tasnim reported there has been no "tangible progress" and Iran is ready to target Israel if the attack on Beirut continues, keeping market sentiment fragile.
The market's primary focus remains the Strait of Hormuz. Trump said the strait would be opened "soon" if Iran signs a Memorandum of Understanding (MoU) on the cessation of hostilities, with the condition that certain areas, including mines, be cleared. However, as long as Hormuz remains effectively blocked and shipping movements are limited by the Tehran-Washington dual blockade, the supply risk premium is unlikely to disappear completely.
Compounding the concern is the dwindling global supply cushion. US government data shows that stocks at the Cushing, Oklahoma, WTI delivery point, have fallen for the sixth week and are approaching minimum operational levels. This means that if the Hormuz disruption is prolonged, the market will be increasingly vulnerable to price spikes as the supply buffer space becomes increasingly tight.
Similarly, Westpac warned that while the Israel-Lebanon ceasefire could mitigate short-term risks, Brent could still surge to US$130 in the fourth quarter if Hormuz remains unrecovered and global supplies tighten. Essentially, the market could lower prices today, but the risk structure remains tilted to the upside if physical flows do not recover quickly.
In the US, political dynamics are also on the radar. The Republican-led House of Representatives passed a vote to end the US war with Iran, signaling concerns that conflict is spreading within the party ahead of the midterm elections. However, this measure does not automatically halt military operations, as it still requires Senate approval and its legal aspects are being debated.
In Asian trading at 8:13 a.m. Singapore, Brent August crude fell 0.7% to US$97.13/barrel, while WTI July crude fell 0.7% to US$95.38/barrel. (asd)*
Source: Newsmaker.id
