Oil Prices Rise on Supply Concerns After Trump Rejects Iran's Hormuz Proposal
Market Reactions and Geopolitical Developments
By Scott DiSavino
Oil Price Movements and Diplomatic Efforts
NEW YORK, Sept 28 (Reuters) - Oil prices settled slightly higher on Monday on worries about ongoing supply disruptions as Qatari mediators pledged to hold talks with the US and Iran in hopes of finding a peace deal to reopen the Strait of Hormuz.
Prices jumped over $4 a barrel in early trade after US President Donald Trump rejected a proposal from Iran that would have reopened the strait. Oil then pared gains on expectations Qatari mediators would hold talks with both sides.
Brent futures settled up 96 cents, or 0.9%, at settle at $105.28 a barrel. US West Texas Intermediate (WTI) crude rose 19 cents, or 0.2%, to settle at $92.60.
Qatari Mediation and Negotiations
Qatari mediators are expected to hold separate talks with Iranian Foreign Minister Abbas Araqchi in New York and with the US side on Monday or Tuesday, an official briefed on the negotiations told Reuters.
The talks are expected to focus on an amended version of a seven-day proposal that Iran presented last week on the sidelines of the United Nations General Assembly, said the official, who spoke on condition of anonymity.
Diplomatic Stances and Regional Tensions
Over the weekend, Iran insisted that only diplomacy can solve its conflict with the US and Israel, after Trump rejected the Iranian proposal to reopen the Strait of Hormuz and end hostilities.
Keeping the door to diplomacy open, however, Trump told Axios in a phone interview on Sunday that he expected US negotiators to engage in more talks this week.
Saudi Foreign Minister Prince Faisal bin Farhan arrived in Washington on Monday for talks with US Secretary of State Marco Rubio, the Saudi state news agency said, amid escalating hostilities between Riyadh and Yemen's Iran-backed Houthis.
Middle East Oil Supply and Export Dynamics
More Middle East Crude Flowing
Crude oil exports from key Middle East producers rebounded in September to 12.8 million barrels per day, the highest since the war started in February, preliminary data from Kpler showed on Monday, as Saudi Arabia and the United Arab Emirates boosted exports.
The rebound came after a recovery in shipments via the Strait of Hormuz, which were set to hit about 7.4 million bpd this month, the data showed. Saudi Arabia diverted exports from the Red Sea port of Yanbu to its eastern Ras Tanura port following attacks that damaged its East-West pipeline.
"Despite more vessel traffic through the Strait of Hormuz, flows remain below pre-conflict levels, keeping the market undersupplied," UBS analyst Giovanni Staunovo said.
About a fifth of the world's oil supply — roughly 20 million bpd — passed through the Strait of Hormuz before the US and Israel attacked Iran in February.
Saudi Aramco is considering offering discounts on its official selling prices for oil loaded off Oman to compensate buyers for record freight rates, five people familiar with the matter said.
Diesel Prices and Regulatory Responses
Diesel Prices Soaring
In an effort to bring down soaring gasoline and diesel prices, the White House is considering regulatory relief that would allow broader sales of red-dyed diesel, according to two people familiar with the discussions.
In addition, the US Transportation Department on Monday finalized sharply lower vehicle fuel economy standards.
Impact of Export Bans and Market Expectations
Washington's recent talk of a possible ban on diesel exports after prices of the fuel hit record highs in recent weeks is widening the gap between US crude oil futures and the global Brent benchmark, a signal that markets expect US refiners to process less crude oil if their diesel output gets stuck at home.
The premium of futures for Brent over WTI rose on Monday to its highest since May for the third time in four trading sessions. That could prompt energy firms to send tankers to the US to pick up more US crude for export to other countries.
Diesel prices have soared due to supply disruptions related to the wars in the Middle East and Ukraine and export bans in Russia and China.
Goldman Sachs said that while Europe and especially Latin America are the key destinations for US diesel exports, a diesel tightening shock would likely quickly spread to the rest of the world.
Moscow imposed a ban on diesel exports to preserve domestic supplies due to refinery disruptions caused by Ukrainian attacks on Russia's energy infrastructure.
On Monday, Ukrainian President Volodymyr Zelenskiy said Ukraine's military had struck Russian oil facilities in the Krasnodar region.
(Reporting by Scott DiSavino in New York, Anushree Mukherjee in London, Mohi Narayan in New Delhi and Florence Tan in Singapore; Additional reporitng by Ahmad Ghaddar in London; Editing by Jan Harvey, David Gregorio and Mark Potter)
