- Oil prices have fallen to more than two-week lows as Saudi Arabia restores a key export route and hopes for improved Middle East supply weigh on crude markets.
Oil prices are falling again as signs of improving crude supplies in the Gulf and renewed hopes for a diplomatic resolution to the US-Iran conflict reduce some of the supply-risk premium that had pushed prices sharply higher.
Brent crude futures were up 16 cents, or 0.16%, at $99.41 a barrel Wednesday morning, while West Texas Intermediate crude futures fell 50 cents, or 0.55%, to $90.02, according to Reuters. Brent had fallen to $97.36 in the previous session, its lowest level since Sept. 8, while WTI touched its lowest since Sept. 1.
The decline comes after weeks of volatility in energy markets, with investors now seeing more crude potentially reaching global markets even as the conflict continues.
Saudi Pipeline Restart Eases Oil Supply Concerns
One of the biggest developments for oil markets has been Saudi Arabia's restart of its East-West Pipeline. Saudi Arabia resumed operations on the pipeline Tuesday after it was shut following drone attacks on Sept. 11. The route allows the kingdom to move crude to the Red Sea port of Yanbu, bypassing the Strait of Hormuz.
The pipeline can move as much as 7 million barrels per day, although sources told Reuters that restoring full capacity could take several weeks because three pumping stations were damaged in the attacks. Saudi Arabia had been using the route to redirect about 4 million barrels per day, equivalent to roughly 4% of global oil supply.
Saudi Arabia has also offered additional barrels to Asian refiners from locations outside the Strait of Hormuz, while Iraq said it was exporting more than 3 million barrels per day and expects exports through Turkey to eventually exceed 600,000 barrels per day.
These developments have given traders more confidence that some disrupted supply can be rerouted even while the Strait remains affected by the conflict.
US-Iran Talks Are Adding to the Pressure on Oil
Expectations surrounding a possible diplomatic breakthrough are another factor weighing on crude. President Donald Trump said Tuesday that US envoys had held productive discussions with mediators over Iran, even as he continued to warn Tehran over the conflict. Reuters reported that an Iranian official separately said the Strait of Hormuz could potentially reopen within seven days if the US eases military pressure and lifts its blockade on Iranian ports.
The Strait of Hormuz is particularly important to the oil market because of the volume of global energy shipments that normally move through the waterway.
For traders, any credible improvement in access through the strait could remove another layer of geopolitical risk from crude prices. The Wall Street Journal likewise reported that oil markets were responding to expectations of increased Gulf supply and potential diplomatic progress between the US and Iran.
That does not mean the supply disruption has been resolved. Reuters quoted WisdomTree commodity strategist Nitesh Shah cautioning that oil prices could quickly reverse higher if the geopolitical situation deteriorates again.
US Crude Inventories Also Rose
US crude inventories are providing another bearish signal. Industry data showed US crude stockpiles increased by 1.8 million barrels in the week ended Sept. 18, according to Reuters. Analysts surveyed by the news agency had expected inventories to decline.
Official inventory figures from the US Energy Information Administration were scheduled for release later Wednesday. The inventory increase comes as refiners and fuel markets continue to deal with an unusual split between crude availability and refined-product supply.
Kpler's Matt Stanley told Reuters that diesel and jet fuel remain tight even as more crude begins finding its way into the market.
Diesel Prices Remain a Problem
Falling crude prices have not yet translated into relief across the fuel market. US diesel prices reached a record $6.527 per gallon Tuesday, according to AAA data cited by the Wall Street Journal, as disruptions to global crude flows and reduced Russian diesel exports continue to tighten supplies.
Trump has backed a proposal to restrict US diesel exports as a way to increase domestic availability and bring down prices. Analysts and market watchers cited by Reuters have argued that such a move could have limited benefits and potentially create additional disruptions in global fuel markets.
That creates a notable divergence in the energy market: crude oil is moving lower as supply concerns ease, while refined fuels such as diesel remain under significant pressure.
What Happens to Oil Prices Next?
The next direction for oil prices is likely to depend heavily on whether the improvement in physical supply continues. Saudi Arabia's pipeline is operating again, but it has not yet returned to full capacity. Iraq is increasing exports, while any sustained reopening of the Strait of Hormuz would provide another potential boost to global crude flows.
At the same time, diplomatic progress between the US and Iran could further reduce the geopolitical premium embedded in oil prices. A renewed escalation could have the opposite effect.
For now, Brent remains close to the $100 level while WTI has fallen toward $90, reflecting a market that is pricing in a better supply outlook but remains highly sensitive to developments in the Middle East.