West Texas Intermediate fell to $80.52 on Wednesday, its third straight down session, as diplomatic progress on reopening the Strait of Hormuz outpaced the physical recovery of Gulf oil supply. Brent dropped below $88 while 8.3 million barrels a day of Gulf output stays shut in, and separate tension from the Russia-Ukraine war kept a floor under prices.
WTI drops a third straight session
West Texas Intermediate traded at $80.52 on Wednesday, down 2.2%, after printing an intraday low of $80.26. That marked a third consecutive down session and WTI's lowest level since the beginning of August, following Tuesday's close of $81.10 after a 4.58% tumble.
Over the past three sessions, WTI has fallen roughly 6%, putting it 9% below last week's highs above $87.00. Later reporting put Brent settling at $87.84 a barrel and WTI at $82.23 as the session closed.
Iran and Oman work toward a Hormuz corridor
The proximate trigger was diplomacy. Iran and Oman opened talks on a temporary joint maritime corridor through the Strait of Hormuz, according to a joint statement carried by the Oman News Agency. Iran's military separately said the two sides had reached a revenue-sharing agreement on the waterway, though Tehran has repeatedly said a navigation deal would not equate to an immediate reopening.
Sanctions land softer than feared
A fresh package of U.S. sanctions on Iran did not arrest the sell-off. Washington did not impose secondary sanctions on Iran's trading partners, a step that would have directly threatened Chinese purchases of Iranian crude. According to Investing.com: "Trading the second is what generated the war premium."
Yet Iran's position on the strait has not softened: Tehran insists the strait will only fully reopen once the war ends, the U.S. naval blockade is lifted, and Yemen's status is resolved.
Gulf supply still deeply impaired
The physical picture underneath the diplomacy has barely improved. Global oil supply rose 2.4 million barrels per day to 101.5 million barrels per day in July, but remained 6.3 million barrels per day below year-ago levels, while approximately 8.3 million barrels per day of Gulf output stays shut in.
Prompt differentials for both WTI and Brent returned to backwardation over July, a futures curve structure that signals physical tightness in the front months. Still, US crude stockpiles rose by a modest amount in the week to August 21, to around 429 million barrels, well short of the increase analysts had forecast.
Russia-Ukraine war adds a separate floor
Renewed tension on a second front kept prices from falling further. Prices pushed higher during the session after Russian President Vladimir Putin was said to be planning an escalation in Ukraine, having concluded that peace negotiations had reached a dead end.
One of Russia's largest refineries, NORSI, suspended crude processing following a Ukrainian drone strike. Diesel futures in New York settled higher, more than doubling already this year, as US domestic diesel supplies fell to their lowest seasonal level ever.
Sources: Investing.com Analysis, Rigzone, Investinglive
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