Front-month futures dropped to below $100 per barrel again in morning trade in Europe on Thursday, reversing earlier gains, as the market hopes the U.S. and Iran could be able to reach an agreement that would eventually reopen the Strait of Hormuz.
Following a steep selloff on Wednesday, which crashed the prices by 7%, Asian trade on Thursday began with nearly 1% gains for both benchmarks, amid investor concern that the U.S.-Iran deal is not as imminent as signals on Wednesday suggested. The continued blockage at the Strait of Hormuz and the fast-depleting global inventories, including in the U.S., have also given pause to bears in recent hours.
The selloff had already eased late in the Wednesday session after U.S. President Donald Trump said it was still “too soon” for direct talks with Tehran, while Iranian officials signaled major sticking points remained unresolved – most notably the issue with Iran’s nuclear program.
In morning trade in Europe on Thursday, both Brent and prices were falling by about 2%, with the international benchmark down by 1.8% to $99.45 and the U.S. benchmark, WTI, dipping by 2% at $93.18.
According to the latest reports, the U.S. has sent a proposal for a one-page memorandum that could lead to a gradual re-opening of the Strait of Hormuz and the lifting of the U.S. blockade on access to Iranian ports. Iran has yet to review and respond to the proposal.
No agreement has been reached on fresh mediated talks, including on Iran’s nuclear program.
Wednesday’s sell-off “partly unwinds the conflict-driven rally in energy prices, but losses were pared as the market remains cautious,” ING’s commodities strategists Warren Patterson and Ewa Manthey wrote in a note on Thursday.
“Crude inventories in the US continue to tighten, while buyers have become more reliant on US barrels to offset disrupted Middle Eastern supply,” they added.
