(Bloomberg) — Oil fell in a volatile session, with traders focused on whether US President Donald Trump will soon declare an end to the war in Iran.
West Texas Intermediate futures crude slid below $100 a barrel, at one point slumping more than 4.8%, before recovering some of that loss to trade near $99.
Trump posted on his Truth Social network — ahead of an address to the US due later — that Tehran had asked for a ceasefire. He said America would consider such a measure once the Strait of Hormuz is reopened. The Islamic Republic retorted that the waterway won’t be reopened based on the US leader’s “absurd displays” and that the future of the key transit route will be decided by Iran and Oman.
Trump previously told reporters that the US may exit Iran within two to three weeks, and indicated that an agreement with Tehran might be reached but wasn’t necessary for the conflict to end.
Crude prices are still about 40% higher than they were before March as the war continues to squeeze flows through Hormuz, the conduit for about a fifth of the world’s oil. The International Energy Agency has called it the biggest supply disruption ever and prices for some fuels have at times topped $200 a barrel.
In the event that the US withdraws, it’s unclear how quickly Hormuz traffic could resume — if at all — and Trump has repeatedly indicated that US allies would have to help secure the strait. Any increases in energy output from the region would also take time, though a detente would lower the risk of further damage to infrastructure.
Trader conviction that a resolution is imminent is increasing as both the US and Iran signal greater openness to de-escalation, according to Dennis Kissler, senior vice president for trading at BOK Financial Securities Inc. “The latest sell-off in the back end of the WTI price curve is having a calming effect,” he added.
The value of several deferred contracts has weakened over the past few sessions, in a sign that traders are hedging for increasing supply in the coming months. Still, market volatility is hovering near multi-year highs, with many investors winding down position sizes to avoid extreme price swings.
Trump is scheduled to give an address at 9 p.m. Eastern time on Wednesday. He has regularly vacillated between saying an Iran deal is imminent and warning he’s prepared to ramp up military operations. A third US aircraft carrier strike group is currently heading to the Middle East, suggesting a possibility of further escalation.
“Flows and actions matter more than words,” said Giovanni Staunovo, a commodity analyst at UBS Group AG.
The jump in energy prices driven by the effective closure of Hormuz has raised fears of an inflation crisis. The retail price of US gasoline this week topped $4 a gallon for the first time since August 2022, which will likely heap more pressure on Trump.
On the physical front, US crude stockpiles rose by about 5.5 million barrels, the highest since June 2023, weekly figures from the Energy Information Administration showed. The prices for a clutch of Atlantic-linked crude grades hit fresh multi-year highs on Wednesday, as demand jumps for replacements for shut-in Middle Eastern supplies.
Iranian Demands
US officials haven’t explicitly specified to whom they’re talking with in Iran. The Islamic Republic’s Foreign Minister Abbas Araghchi told Al Jazeera he had received messages from the US Middle East envoy but no formal negotiations were taking place. Tehran has also laid out requirements to be met, including maintaining sovereignty over Hormuz.
The Wall Street Journal reported that the United Arab Emirates has urged the US and military powers in Europe and Asia to form a coalition to open the waterway by force. China and Pakistan issued a joint call on Tuesday for an immediate ceasefire and for shipping to be safeguarded.
Despite the flurry of optimism over potential de-escalation, attacks were still continuing on Wednesday. An oil tanker was struck near Qatar, with a UK naval group saying the incident caused a fire that was eventually extinguished. There was no environmental damage reported.
–With assistance from Sarah Chen and John Deane.
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