(Bloomberg) — Oil tumbled on optimism that the US and Iran will reach a peace deal, even as President Donald Trump said he was not satisfied with negotiations to end the almost three-month war.
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West Texas Intermediate crude traded near $90 a barrel. Trump’s remarks followed an Iranian state television report on a draft interim peace agreement, which said maritime traffic through the Strait of Hormuz could return to normal within a month of the pact coming into effect. The White House denied the report.
While Trump’s comments damped expectations for an imminent breakthrough, traders remained focused on broader prospects for deal to end the war and reopen the strait, which normally handles around a fifth of the world’s oil and liquefied natural gas supply. Such an agreement would likely unleash a barrage of barrels into the sorely undersupplied oil market.
“There does appear to be some position unwinding accelerating the move lower, but more importantly there’s a real reluctance to buy this dip,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Group. Regarding any news of a potential peace agreement, “time will tell what the details and timing ultimately look like, but at the moment the mentality is sell first, ask questions later.”
Traders have grown particularly cautious about holding long exposure to oil ahead of headlines showing progress in ending the war, Babin said. Amplifying the move down, trend-following commodity trading advisers shifted their positioning on WTI from 82% long to 55% long, according to Kpler.
But key sticking points remain in the talks with Iran, including Tehran’s $24 billion in frozen assets and its reluctance to allow free passage through the strait. At a White House cabinet meeting, Trump said “nobody” would control the Strait, but the US would “watch over it.”
For now, the strait remains essentially shut, subject to blockades by the US and Iran. Commercial shipping through Hormuz dwindled to only a few mostly Iran-linked vessels crossing on Wednesday after two supertankers exited the checkpoint the prior day.
Wednesday’s selloff also came as trading began thinning in Brent’s July contract, which is due to expire at the end of this week.
–With assistance from Sarah Chen.