(Bloomberg) — Oil extended a steep drop after President Donald Trump said the US and Iran were engaged in talks to end the Middle East conflict.
Global benchmark Brent fell below $88 a barrel after losing 8.7% on Monday, the most in more than three months. West Texas Intermediate was near $82 a barrel.
President Trump said he decided to pause strikes against the Islamic Republic to give negotiations another chance, according to Axios. Still, it remains unclear if any substantial discussions between the two sides were taking place.
Crude has been whipsawed this month, initially surging as hostilities between Washington and Tehran re-escalated and the war spread to the Red Sea, then slumping when tensions eased in recent days. Still, traders remain cautious as tanker traffic through the Strait of Hormuz has yet to normalize.
“I don’t think the Middle East is ‘solved’,” said Scott Shelton, energy specialist at TP ICAP Group Plc. There needs to be “real evidence of oil moving through the Strait of Hormuz, which I think has yet to happen,” he added.
In the Middle East, negotiators from Iran and Oman are trying to reach a deal to restart shipping through the waterway, which links the Persian Gulf to global markets and used to carry a fifth of daily oil flows in peacetime.
Iran and Oman, which border the strait, are continuing discussions after their officials met in Tehran over the weekend, according to people familiar with the matter. A successful deal would then enable the Islamic Republic and the US to resume talks over ending their war, they said.
Iran’s army said it halted retaliation against US bases and troops in the region as a result of Trump’s decision to hold off on strikes. The Islamic Republic had been attacking the likes of Kuwait, Bahrain and Jordan on a near-daily basis in the two weeks before the US pause on Friday.
Supply disruptions also eased elsewhere, as Kazakhstan’s main terminal resumed loadings after Ukrainian drone attacks had disrupted exports. Two tankers began loading at the Caspian Pipeline Consortium facility near the Russian port of Novorossiysk, the Kazakh energy ministry said.
Macquarie Group Ltd. warned a glut was likely to return before the end of year as Washington faced mounting pressure to end the Iran conflict. As soon as a deal was reached, the oil market would be “significantly” oversupplied, with a daily surplus of 2 million barrels expected in the fourth quarter, it said.
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