Oil prices reversed early gains on Tuesday as signs of recovering Middle East crude exports offset persistent concerns over supply disruptions linked to the U.S.-Iran conflict and uncertainty surrounding the Strait of Hormuz.
MONTREAL (Oil Monster): Oil prices turned lower Tuesday after rising more than 1% in early Asian trading, as investors weighed persistent Middle East supply risks against signs that crude exports from the Gulf are continuing to recover.
Brent crude futures were down 54 cents, or 0.51%, at $104.74 per barrel by 1144 GMT.
U.S. West Texas Intermediate crude fell 77 cents, or 0.83%, to $91.83 per barrel.
Earlier in the session, Brent had traded as high as $106.77, while WTI reached $93.94 as supply concerns initially supported prices.
Crude exports from major Middle Eastern producers climbed to approximately 12.8 million barrels per day in September, according to preliminary data from Kpler.
That represents the highest monthly level since February, before the regional conflict caused major disruptions to oil and gas shipping routes.
The increase has been supported by higher exports from Saudi Arabia and the United Arab Emirates.
However, some of the additional Gulf crude is still moving through less efficient arrangements such as ship-to-ship transfers, adding freight and handling costs compared with normal export operations.
Saudi Arabia has resumed crude loadings from its Red Sea port of Yanbu after restarting its East-West Pipeline.
The pipeline moves crude from eastern Saudi Arabia across the country to the Red Sea coast, allowing exports to bypass the Strait of Hormuz.
Restoring the route has improved the outlook for Saudi crude exports after attacks earlier this month disrupted pipeline operations and sharply reduced flows through Yanbu.
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U.S. and Iranian officials have continued separate discussions with mediators as diplomatic efforts seek a path toward ending the seven-month conflict.
Iran last week presented a proposal that included conditions for reopening the Strait of Hormuz and pausing regional fighting.
U.S. President Donald Trump rejected the proposal over the weekend but further diplomatic contacts have continued.
Trump also denied reports that the United States had offered sanctions relief or access to frozen Iranian funds in exchange for progress on Tehran's nuclear program.
Iranian officials have said they remain open to negotiations but have maintained that reopening Hormuz depends on their conditions being addressed.
The Strait of Hormuz remains a major source of uncertainty for global energy markets.
Oil flows through the waterway have recovered from severely disrupted levels earlier in the conflict, but remain well below normal pre-war volumes.
Continuing security risks have increased tanker insurance, freight and operating costs and encouraged Gulf producers and traders to rely on alternative routes and transfer arrangements.
The continued disruption helps explain why crude prices remain elevated even as headline export volumes improve.
Despite Tuesday's reversal, crude benchmarks remain on course for substantial monthly gains.
Brent is headed for an increase of roughly 16% in September, while WTI is on track to gain about 7%, reflecting the impact of Middle East supply disruptions and elevated geopolitical risk during the month.
Oil markets are also monitoring U.S. government efforts to address record-high domestic diesel prices.
The White House is considering regulatory relief that would allow broader sales of red-dyed diesel, which is normally restricted to off-road uses such as agriculture and is exempt from most federal fuel taxes.
The proposal has emerged as one possible alternative to a diesel export ban.
President Trump has supported restricting diesel exports, but the proposal has faced opposition from refiners and other industry groups concerned that export limits could disrupt refinery operations and fuel markets.
Allowing broader use of red-dyed diesel could reduce the tax burden for some consumers, although it would not directly increase the underlying supply of diesel.
European diesel futures have more than doubled this year amid tight global supplies and disruptions affecting Middle Eastern and Russian refining and export capacity.
European diesel traded around $1,370 per metric ton Tuesday after reaching approximately $1,535 per ton last week.
The United States has become increasingly important to global diesel supply, making any restrictions on American exports a significant issue for buyers in Europe and Latin America.
Supply Recovery: The rise in Middle East exports to 12.8 million bpd is easing some of the immediate concern over physical crude availability.
Logistics Risk: Export volumes alone do not indicate a return to normal conditions. Tanker diversions, ship-to-ship transfers and elevated insurance costs continue to make Gulf crude more expensive to move.
Price Direction: Oil remains caught between recovering physical exports and unresolved geopolitical risk. Progress on Hormuz access could pressure prices lower, while renewed attacks or failed diplomacy could quickly restore the risk premium.
Courtesy: www.reuters.com
