Oil pares gains on Iran diplomacy hopes, amid focus on key Saudi pipeline closure

Oil prices on Monday pared some gains after President Donald Trump said Iran wanted to make a deal and that Washington was “open” to such a “concept.”

Crude benchmarks had surged earlier after more Houthi attacks on Saudi Arabia and after talks between Gulf countries and Iran over the Strait of Hormuz were postponed. Meanwhile, a hit to a crucial oil pipeline in Saudi Arabia last Friday further exacerbated concerns over supply disruption.

At 16:19 ET (20:19 GMT), Brent crude futures expiring in November were up 1.6% to $106.28 a barrel, after earlier hitting a session high at $109.74. U.S. West Texas Intermediate crude futures expiring in October added 1.8% to $101.89 a barrel, having hit a session high at $104.91.

Some encouraging diplomatic signs
Oil prices have surged nearly 20% over the last two weeks amid a resurgence in military strikes between the U.S. and Iran and a widening conflict between Saudi Arabia and Iran-backed Houthis in Yemen. The fighting threatens oil flows through two critical Gulf shipping corridors, the Strait of Hormuz and the Bab el-Mandeb Strait.

Traders had taken some hope at the end of last week after news of a scheduled meeting between Gulf powers and Iran to secure a deal to manage commercial shipping through the Strait of Hormuz. However, the meeting, which was set for Monday, has been postponed.

Oman’s foreign minister said the gathering was delayed “in the interests of consensus.”
Iran’s foreign ministry added that the country would coordinate with Oman to set up another suitable date for the meeting, according to Fars News Agency.

Oil had initially risen on Monday amid the postponement, but Trump later in the morning said Iran wanted to make a deal, “quickly and badly.”

“I will determine whether or not the U.S.A. will choose to engage – The concept of which we are open to,” the president added.

Elsewhere, the Iranian Labor News Agency (ILNA) said the U.S. was seeking a “step-by-step” agreement with Iran in what could be the preclude to Washington returning to negotiations, citing Pakistani sources.

Oil pared gains after Trump’s comment and ILNA’s report.

Market participants remain focused on oil flows through the Strait of Hormuz, which remain constricted. Tanker traffic through the vital waterway has slowed to a fraction of levels prior to the start of the war in late February. Before the war, roughly a fifth of the world’s oil and liquefied natural gas flowed through the chokepoint.

Widening conflict between Houthis and Saudi Arabia
Meanwhile, the Bab el-Mandeb Strait has emerged a fresh flashpoint in a widening Middle East conflict that could further disrupt key global oil flows. About 12% of worldwide trade traverses the strait, Al Jazeera reported.

The Associated Press reported on Monday that Iran-backed Houthi militants in Yemen had seized control of more strategic islands located in the southern Red Sea.
Citing Yemeni government and Houthi officials, the AP said the Houthis had deployed fighters on the islands of Greater Hanish and Lesser Hanish, which are located roughly 160 kilometers north of the Bab el-Mandeb Strait.

Last week, the Houthis took control over sections of Yemen’s Red Sea coast, bolstering their hold over the strait. The conflict has also spilled beyond Yemen, with Houthis launching drone attacks at locations in southern Saudi Arabia, a major oil producer.

The strikes hit Saudi Arabia’s key East-West Pipeline in the Riyadh and Madinah regions, leading to its shutdown. Should exports not restart in the pipeline within days, up to 4% of global oil supply will be lost, Saudi oil buyers and traders cited by Reuters warned. Separately, AP reported that the pipeline would be largely out of service for several weeks while repairs were completed, citing two regional officials.

The pipeline spans 1,200 kilometers across Saudi Arabia and has the capacity to transport up to 7 million barrels of oil daily, serving as a key route for Saudi oil exports to the Red Sea and providing an alternative to shipments through the Strait of Hormuz.

“Saudi Arabia closing its East-West pipeline following recent drone attacks is a huge blow in particular. The critical infrastructure – representing 4% of the world’s crude oil supply – bypasses the Strait of Hormuz and has been crucial since the U.S.-Iran conflict began,” Yerbol Orynbayev, former World Bank governor of Kazakhstan, told Investing.com.

“With no clear indication of when the Petroline will reopen, barrel prices are back to trading above $100 and oil-driven pressures look sure to skyrocket once again,” he added.

Ukraine and Russia to not hit energy targets as U.S. diesel hits record
Away from the Middle East, the war between Russia and Ukraine also grabbed some attention after Trump on Sunday called on Ukrainian President Volodymyr Zelenskyy to not attack Russian diesel infrastructure, blaming the strikes for causing a shortage of the fuel.

On Monday, Trump said the nations had agreed not to hit each other’s energy infrastructure.

Ukraine in recent months has ramped up drone attacks against Russian oil refineries and energy infrastructure, which in turn has caused the country’s fuel production to drop. Russia has also frequently attacked Ukrainian energy infrastructure. The war between the two has now stretched on for more than four years since Russia initially invaded Ukraine by land, sea, and air in late February 2022.

In the U.S., the national average diesel price surpassed $6 a gallon for the first time in history last week, according to GasBuddy. As per AAA, U.S. diesel stood at a record high of $6.2301 a gallon on Monday.