(Bloomberg) — Oil slipped following three days of gains after Israel and Lebanon agreed to a ceasefire if Hezbollah also stops hostilities, which would remove a key sticking point in talks between Washington and Tehran.
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Brent fell toward $97 a barrel while West Texas Intermediate was near $95, after adding almost 10% in the week’s first three sessions. The deal is contingent on “a complete cessation” of fire from Iran-backed Hezbollah, according to a statement from both countries and the US.
While Washington and Tehran have agreed on a rough framework to extend their truce by two months and reopen the Strait of Hormuz, negotiations over the final details are dragging on, and there’s also been a flare-up in fighting. “No tangible progress has been achieved” in the talks, and Iran is prepared to target objectives inside Israel if its attacks on Beirut continue, the semi-official Tasnim news agency reported the Islamic Republic’s foreign minister as saying.
Oil has erased last week’s drop as the clashes sapped optimism over a deal to extend the current ceasefire, and potentially see flows resume through the strait. As negotiations drag on, the world’s supply cushion is rapidly running out. US government data on Wednesday showed crude stocks at Cushing, Oklahoma, the delivery point for WTI, fell for a sixth week to near what is known as the minimum operating level.
Although an Israel-Lebanon ceasefire could reduce near-term upside risks to prices, as long as the strait remains technically closed, Brent crude is likely to spike to as high as $130 in the fourth quarter as global inventories tighten, said Robert Rennie, head of commodity research at Westpac Banking Corp. “The market is asleep at the wheel, even as we drive rapidly toward aggressive tightening in crude and product markets,” he said.
US President Donald Trump said the Strait of Hormuz would open “immediately” upon Iran signing a memorandum of understanding to cease armed hostilities “subject to a couple of areas being cleaned out, also of mines.” He downplayed the threat of mines in the strait to commercial shipping.
The oil market’s main focus remains the key waterway, through which one-fifth of global crude normally passes. The effective paralysis of the chokepoint under a double blockade by Tehran and Washington has sent fuel prices higher, as vessel movements remain limited.