Oil Pares Weekly Gain as US-Iran Diplomatic Wrangling Continues

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(Bloomberg) — Oil pared a second weekly gain after Iran responded to the latest US amendments on plans to end the war in the Middle East.

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Tehran delivered the text of its latest proposal for negotiations with the US to mediator Pakistan on Thursday evening, the state-run Islamic Republic News Agency reported, without detailing the contents. The move was also reported by Axios, citing a regional source it didn’t identify.

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Futures had earlier strengthened as US President Donald Trump said he was sticking with a naval blockade of Iranian ports and was briefed on further military options.

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Brent for July, the global benchmark, edged lower before trading little changed near $111 a barrel, while West Texas Intermediate, with significantly less volume, was down 1.3% near $104. Brent was still on track for a weekly gain of about 5%, and WTI was up roughly 10% for the period. The weekly gains reflect the unresolved conflict and the blockade of oil exports from the Persian Gulf. 

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Earlier, in a written statement, Iran’s Supreme Leader Mojtaba Khamenei cast doubt on the prospects of a deal with the US, vowing not to give up the Islamic Republic’s nuclear or missile technologies, and signaling Tehran would keep control of the Strait of Hormuz.

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Chevron Corp. Chief Executive Officer Mike Wirth told CNBC in an interview that the company is worried about global oil supplies running dry, and the threat to fuel demand.

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“The global energy system continues to be under extreme stress,” Wirth said.

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Oil briefly surged to a four-year high on Thursday as the deadlock in negotiations extends the near-total closure of the Strait of Hormuz, the crucial waterway that before the war carried about a fifth of the world’s crude.

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“The market has started to wake up to the reality that it might take longer before oil starts flowing through the strait again,” said Jens Naervig Pedersen, a strategist at Danske Bank AS. “That will drain storage further. Higher prices are needed to make sufficient demand destruction to balance the market.”

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The uncertainty over future supply has seen sharp price swings, depressing trading volumes. Markets are closed in many nations — including China, Singapore, Germany, France and Brazil — for Labor Day.

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Meanwhile, Japan’s top currency official said authorities in Tokyo are maintaining readiness to intervene in the crude oil futures market, where speculative moves have been affecting the currency. Japan stepped into the currency market on Thursday to buy yen, according to a person familiar with the matter, coinciding with the biggest drop in the Bloomberg Dollar Spot Index since January.

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ConocoPhillips is warning of imminent “critical shortages” of oil for some nations as the war enters its third month. The supply pinch appears likely to significantly worsen as soon as June, Chief Financial Officer Andy O’Brien told analysts during a conference call on Thursday.