Brent: Diplomatic progress weighs on prices – OCBC

OCBC Bank strategists Sim Moh Siong and Christopher Wong note that improved prospects for shipping through the Strait of Hormuz and diplomatic developments involving Iran and Oman have eased supply concerns, pushing Brent crude below USD90/bbl. Lower energy prices have contributed to softer US and European bond yields, with markets now focused on US core PCE and Jackson Hole for guidance on Federal Reserve inflation priorities.

Hormuz developments pressure Brent

"Improved prospects for shipping through the Strait of Hormuz have eased supply concerns and weighed on oil prices."

"Investors have largely brushed aside Washington’s plans to increase economic pressure on Iran, with oil markets increasingly pricing in the prospect of a diplomatic breakthrough."

"Brent crude fell below USD90/bbl overnight after the US stopped short of imposing secondary sanctions on countries doing business with Iran, including China."

"Instead, oil prices declined as diplomatic developments reduced fears of a broader Middle East escalation. Iran and Oman have unveiled a joint framework to restore safer navigation through the Strait of Hormuz following talks in Tehran on Tuesday."

"A negotiated temporary shipping corridor, together with ongoing mine-clearing efforts, materially improves the outlook for conventional tanker traffic through the strait."

"Meanwhile, Pakistan’s Army Chief concluded a one-day visit to Iran, with local media reporting constructive outcomes. Crude prices also came under pressure after reports that the US plans to return diplomats to embassies across the Middle East, signalling that Washington does not expect an imminent escalation in military action."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)