Oil drifts lower as Hormuz flows balance slow progress in Iran diplomacy

By Seher Dareen

LONDON, Aug 28 (Reuters) – Oil prices fell on Friday and were on track for a weekly drop as traders weighed crude flows making it through the Strait of Hormuz against the deadlock in U.S.-Iran diplomacy.

Brent crude futures were down 52 cents or 0.6% at $89.18 a barrel at 1419 GMT. West Texas Intermediate crude futures fell $1.01, or 1.2%, to $82.52.

Both benchmarks were poised to end the week lower, with Brent down around 5.5% and WTI falling 5.2%.

“The market has been surprised by the additional flow, Iran-Oman shipping corridor and the U.S. mine clearance claims,” said Rystad analyst Janiv Shah. 

“The weekly decline would likely be due to the available volume that is able to exit the Strait and the pace of ramp-up in flows. That would allow Asian refiners to pull and consume,” he said. 

The U.S. announced what it called the “toughest sanctions in history” on Iran earlier in the week. Tehran said the sanctions were an “inhumane and hostile act” that had lost their effectiveness. 

Mediators are stepping up efforts to get the Strait of Hormuz reopened, with Tehran agreeing to draw up a list of conditions to restore normal traffic after a Qatari emissary pressed the Iranians to respect freedom of navigation.

FLOWS THROUGH HORMUZ REMAIN CHOPPY

Meanwhile, the tentative recovery of oil flows through the Strait of Hormuz — through which 20% of the world’s oil supply moved before the war — remained choppy.

Seven commodity vessels transited on Thursday, down from 17 a day earlier and below the 10-day average of 15, preliminary shipping data showed on Friday. The Bab el-Mandeb, another major maritime chokepoint, saw 17 commodity vessels pass through, with six entering and 11 exiting.

Goldman Sachs on Thursday estimated recent total Gulf exports at 15 million to 16 million barrels per day, 7 million to 8 million bpd below pre-war levels but 5 million to 6 million above the lowest point in March.

“The ramifications on who will be in or out of OPEC, how China’s demand is affected, whether the refinery issues of the globe can now be solved are hitched firmly to this bumpy wagon of war,” PVM Oil Futures analyst John Evans said.

TRUMP EYES VENEZUELA DEAL

Trump administration officials are working on a deal to secure long-term access to a portion of Venezuela’s crude reserves, sources with knowledge of the negotiations said on Thursday, a move that could ultimately lower the cost of oil imports. 

Venezuela is also considering leaving the OPEC oil production group, Bloomberg reported.

Separately, geopolitical tensions escalated after Moscow warned it could strike British military targets inside and outside Ukraine in response to Kyiv’s attacks on Russian territory using British-supplied long-range cruise missiles.

Trump, however, said Russian President Vladimir Putin will not attack a NATO country, and he downplayed media reports that CIA Director John Ratcliffe this week had warned Russian officials against such an attack. Britain is one of the founding members of NATO.

Ukraine’s military struck a Russian oil refinery in the Yaroslavl region overnight, the Ukrainian General Staff said on Friday.

(Reporting by Sudarshan Varadhan and Colleen Howe; Editing by Conor Humphries and Jan Harvey)