- On Monday, oil fell after Trump said talks with Iran were proceeding nicely.
- Iran met with Qatar to discuss resolving their conflict.
- The US Secretary of State said they were committed to giving talks with Iran every chance to succeed.
Oil prices plunged on Wednesday after top US officials’ remarks fueled hopes for a peace deal to end the Iran war. Meanwhile, traders remained worried about the fragile ceasefire in the previous session after reports of US strikes in Iran.
The oil market has remained bearish since Wednesday last week, as the likelihood of a peace deal between the US and Iran increased. Risk appetite rebounded after Trump said negotiations with Iran were at the final stages. Since then, traders have paid close attention to the messaging from the US and Iran, which has remained optimistic.
Brent futures (Source: ICE, Bloomberg)
On Monday, oil fell after Trump said talks with Iran were proceeding nicely. Moreover, Iran met with Qatar to discuss an end to their conflict, which could ease tensions in the Middle East. However, reports on Tuesday revealed that the US conducted military strikes in Iran despite the ongoing talks. According to the US, these were defensive strikes. Iran vowed to retaliate, and oil prices rebounded.
An escalation would mean supply disruptions persist for longer and keep the oil market tight. Such an outcome would see higher fuel prices in the future.
The narrative changed again on Wednesday after the US Secretary of State said they were committed to giving talks with Iran every chance to succeed. This means that although tensions might remain high, the US is focusing on diplomacy.
“The bottom line is that we prefer the negotiated diplomatic route and we’re going to give it every chance to succeed,” the Secretary of State said.
Meanwhile, reports also suggested that Iran was committed to restoring traffic through the Strait of Hormuz to pre-war levels. If the two nations end up with an agreement, oil supply will return to normal, and prices will drop. However, although Iran says this could happen within a month after a deal, analysts are less optimistic. Some believe it would take more than four months to restore traffic.
Elsewhere, market participants are awaiting the crucial US PCE report. Concerns about inflation have led to an increase in expectations of Fed rate hikes. Another upbeat report would increase the likelihood of such a move in December. High borrowing costs would lower oil demand.
