Oil Fluctuates, US-Iran Nuclear Negotiations a Key Factor
Oil prices fluctuated and remained near their strongest close since July, as the market awaited the continuation of US-Iran nuclear talks this week amidst a major US military buildup in the Middle East. Price movements were also influenced by risk-off sentiment following a weakening US stock market.
In the US, WTI was virtually unchanged, closing around US$66/barrel, after surging nearly 6% last week following President Donald Trump's statement that he was considering a military strike against Iran. Several reports also added to market vigilance, including the evacuation of some US Embassy staff in Lebanon as a precautionary measure, as well as monitoring potential retaliatory action against US interests abroad.
The next round of talks between the US and Iran in Geneva is scheduled for Thursday. Iranian Foreign Minister Abbas Araghchi said there was a "good chance" of a diplomatic solution, but emphasized that Tehran would not bow to pressure from US military deployment. Meanwhile, the issue of uranium enrichment remains a crucial sticking point, making the negotiations vulnerable to a deadlock.
Concerns about conflict in the Middle East remain a factor holding oil prices high, although many market participants still see the potential for a global supply surplus. If an escalation occurs, the greatest risk lies in shipments through the Strait of Hormuz, a narrow waterway that serves as a chokepoint for exports from the world's largest oil-producing region. Therefore, options market participants have long been hedging and paying premiums to anticipate price spikes.
In terms of physical flows, Saudi Arabia, Iraq, and Kuwait ship oil through Hormuz—mostly to Asia. Iran alone pumps more than 3 million barrels per day, with the majority of these flows headed to China. The combination of geopolitical risks and supply disruptions at various points contributes to keeping prices sensitive to headlines.
Meanwhile, several major banks continue to see room for price declines ahead. Goldman Sachs raised its price forecast because stocks in developed countries did not increase as much as expected, but still expects Brent to end around US$60/barrel by year-end. Morgan Stanley also predicts Brent will tend to return to the US$60 area over time. In essence, the rally is considered more driven by a "risk premium" than by a truly tight supply shortage.
In the US, the market is also monitoring the aftereffects of the tariff drama: the Supreme Court ruling overturning the old tariff policy and the government's plan to replace it with a 15% across-the-board tariff. Furthermore, a winter storm disrupting New York's transportation network has contributed to energy product volatility and tightened some short-term indicators.
WTI in April fell 0.1% to close at US$66.31/barrel.
Brent in April fell 0.4% to close at US$71.49/barrel.
Source: Newsmaker.id
