Oil prices experienced a rebound of over 1% on Monday following US President Donald Trump’s dismissal of an Iranian peace proposal intended to address the conflict and facilitate the reopening of the Strait of Hormuz, thereby maintaining heightened tensions in the Middle East. Iran introduced a peace proposal at the UN General Assembly in New York last week, indicating that it had been conveyed to the United States via Qatari mediators. Trump stated on Saturday that he had declined the proposal; however, in an interview on Sunday, he indicated that he anticipated US negotiators would engage in additional discussions this week. Brent crude futures increased by $1.65, representing a 1.50% rise, reaching $106 per barrel. Meanwhile, US West Texas Intermediate crude was priced at $93.40 per barrel, reflecting an increase of 99 cents, or 1.10%. Geopolitical risks persisted at a high level as the Houthis and Iran sustained their offensive actions against Saudi Arabia, thereby jeopardising the stability of regional oil supply flows.
Yemen’s Saudi-led coalition announced early on Saturday the successful interception of two ballistic missiles and two drones that were launched by the Iran-backed Houthis toward the kingdom. Brent experienced an increase of 0.4% last week, in contrast to WTI, which saw a decline of 7.9%. This shift occurred amid rising concerns regarding the potential for the US to impose a ban on diesel exports in an effort to alleviate record prices. Such a move could lead to a decrease in US refining output. A restriction on US diesel exports would tighten supplies outside the United States, with European prices already reacting to the anticipated decrease in American supply. Meanwhile, crude oil exports from key Middle East producers rebounded in September to 12.8 million barrels per day, marking their highest level since the onset of the conflict in February, according to preliminary data from Kpler released on Monday. The increase was propelled by elevated exports from Saudi Arabia and the United Arab Emirates, according to a report.
The recovery was accompanied by an increase in shipments via the Strait of Hormuz, projected to approach approximately 7.4 million barrels per day this month, according to the data presented. Saudi Arabia has redirected exports from the Red Sea port of Yanbu to its eastern Ras Tanura port following damage to its East-West pipeline due to attacks. The prevailing uncertainty has complicated the ability of major banks to evaluate the trajectory of oil prices. JPMorgan indicated that it has lost visibility on the market and, for the first time since the onset of the Iran war in February, no longer possesses a clear baseline scenario. The bank indicated that the rise in tensions was contributing to worries regarding an already deteriorating supply shock. “We simply don’t know how to model the endgame,” analysts said, highlighting uncertainty over how the conflict could develop. At the start of the conflict, the bank had assumed there were economic thresholds the US administration would not cross. Six months into the war, JPMorgan said many of those thresholds had been crossed, while there was still no clear exit strategy. The possibility of further supply disruptions has also heightened the potential for elevated oil prices.
Daan Struyven indicated that recent attacks demonstrated the potential for disruptions to shipping to escalate and proliferate. Goldman Sachs has delineated a scenario wherein oil prices might escalate to $120 per barrel should assaults on vessels in the Middle East intensify. If exports return to normal, the bank anticipates that oil prices will trend back toward $80 a barrel. Struyven indicated that shipping risks have emerged as a significant factor influencing oil prices. Goldman Sachs anticipates a “meaningful upside to crude oil prices” and also projects an increase in natural gas and refined product prices. Struyven indicated that supply shocks in petrol and fuels are more significant than those observed in the crude market.
