Oil slides as Middle East uncertainty keeps markets on edge

NEW YORK: Oil prices fell on Wednesday after U.S. President Donald Trump said the country will end its war on Iran fairly soon.

The front-month Brent contract for June fell $2.06, or 2%, to $101.91 per barrel by 11:47 a.m. ET (1547 GMT), bouncing off a session low of $98.35. U.S. West Texas Intermediate crude futures for May slipped $1.39, or around 1.4%, to $99.99 per barrel, off a session low of $96.50.

Trump, who plans to deliver a speech later in the day, told Reuters the U.S. has ensured Iran will not have nuclear arms and is ready to get out of the war “pretty quickly”. He had signaled on Tuesday that the U.S. could wind down the war in two to three weeks even without a deal.

Oil prices had dropped more than $3 a barrel on Tuesday after Trump’s remarks.

Hegseth says next few days in Iran war will be decisive

Market participants are betting that Trump will not allow oil supply disruptions caused by the Middle East war to extend into mid-May, when U.S. gasoline demand is typically at its strongest, SEB analysts said.

“The risk to U.S. gasoline prices, consumer sentiment and ultimately the November midterm elections makes a prolonged conflict politically costly,” the SEB analysts said.

On Monday, U.S. gasoline prices had risen above $4 a gallon for the first time in more than three years.

US and Iran continue to give conflicting signals

In a social media post on Wednesday, Trump said Iran had asked for a ceasefire, but he will consider it only after Tehran stops blocking the Strait of Hormuz. Iran denied that it made any such request.

Iran has stopped vessels from crossing the Strait of Hormuz since the U.S. and Israel launched attacks on the country at the end of February. This disrupted Middle Eastern oil exports and drove fuel prices higher globally.

Analysts expect that energy flows through the Strait of Hormuz would be slow to return to levels before the conflict even if a ceasefire is announced.

US weighs military reinforcements as Iran war enters possible new phase

“Clearing the vessel backlog would take time, with production, exports and LNG flows normalising only gradually rather than immediately,” ING analysts said.

Oil supply disruptions from the Middle East will increase in April and will hit Europe as the closure of the Strait of Hormuz hits exports further, International Energy Agency head Fatih Birol said on Wednesday.

Fall in output from big producers

Illustrating the impact of the closure of the Strait of Hormuz, crude oil output from the Organization of the Petroleum Exporting Countries dropped by 7.5 million barrels per day in March from the previous month, as producers were forced to cut output because storage is full.

In January, U.S. crude oil output fell by the most in two years, after a severe winter storm knocked production offline, data from the Energy Information Administration showed on Tuesday.

Saudi Arabia could raise its May official selling prices for crude to Asia to record levels, after Middle Eastern oil became the most expensive globally, a Reuters survey of industry sources showed.

Meanwhile, U.S. crude oil inventories rose more than expected last week, data from the Energy Information Administration showed on Wednesday.