Oil Prices Pare Gains on Reports of US-Iran Diplomatic Talks

Oil prices closed higher on Monday but retreated significantly from earlier peaks on expectations of renewed diplomatic efforts between the United States and Iran, potentially mediated by Qatar.

The initial surge, which saw prices jump more than $4 a barrel, was triggered by U.S. President Donald Trump's rejection of an Iranian proposal concerning the Strait of Hormuz. By the afternoon, however, the gains had moderated.

• Brent futures settled up 91 cents, or 0.9%, at $105.23 a barrel.
• U.S. West Texas Intermediate (WTI) crude finished up 20 cents, or 0.2%, at $92.61 a barrel.

Diplomatic Overtures

Market sentiment shifted following a Reuters report that Qatari mediators were expected to hold separate talks with U.S. and Iranian officials in New York on Monday or Tuesday. An official briefed on the matter told the news agency the discussions would likely focus on an amended version of a proposal Iran presented last week.

Despite President Trump's earlier rejection of Iran's plan, he indicated to Axios on Sunday that he anticipated further engagement from U.S. negotiators this week. The diplomatic activity comes as Saudi Foreign Minister Prince Faisal bin Farhan arrived in Washington for talks with U.S. Secretary of State Marco Rubio, according to the Saudi state news agency.

Supply and Demand Context

Ad

While diplomatic hopes cooled prices, the underlying supply situation remains a key concern for the market. Preliminary data from Kpler showed that crude oil exports from key Middle East producers rebounded in September to 12.8 million barrels per day, the highest level since February.

However, analysts noted that flows through the critical Strait of Hormuz, though recovering, are still below pre-conflict levels. "Despite more vessel traffic through the Strait of Hormuz, flows remain below pre-conflict levels, keeping the market undersupplied," said UBS analyst Giovanni Staunovo. Before the conflict, about 20 million bpd, or a fifth of the world's oil supply, passed through the waterway.

Pressure on Refined Products

The market for refined fuels, particularly diesel, is also influencing crude prices. Recent discussions in Washington about a potential ban on U.S. diesel exports have widened the price gap between global benchmark Brent and U.S. WTI crude. The premium of Brent over WTI is near its highest level since May, signaling market expectations that U.S. refiners might process less crude if they cannot export the resulting diesel.

Diesel prices have soared globally due to supply disruptions from conflicts in the Middle East and Ukraine, as well as export bans from Russia and China. Goldman Sachs noted that while Europe and Latin America are primary destinations for U.S. diesel, a supply shock would likely have a rapid global impact.