Oil Stabilizes Amid Reports of Possible Ceasefire Negotiations Between Washington and Tehran

SadaNews - Oil prices stabilized as traders monitored reports of diplomatic moves for a ceasefire in the Middle East, following a new warning from U.S. President Donald Trump to Iran if the Strait of Hormuz is not reopened.

Brent crude traded below $110 a barrel, shedding most of its early gains, while West Texas Intermediate crude approached $111.

Axios reported, citing sources familiar with the talks, that the United States and Iran, along with regional mediators, are discussing terms for a potential 45-day ceasefire that could lead to a permanent end to the war.

Iran’s War Disrupts Markets

The oil market has entered a state of disruption due to the war, which has caused unprecedented supply shocks turning into a global energy crisis. Oil and petroleum product prices have risen sharply, fueling inflationary pressures, weakening economic growth, and increasing burdens on businesses and consumers.

Over the weekend, before the Axios report, Trump threatened in a series of social media posts to bring "destruction" to Iran through strikes targeting power stations and other civilian infrastructure if the Strait of Hormuz is not reopened.

Tehran has rejected these demands, while the waterway remains closed to all ships except a limited number.

Conflicting Messages from Trump Confuse Investors

Investors have been unsettled by Trump's often conflicting messages regarding the conflict, as the U.S. president fluctuates between assurances that the war will end soon and threats to escalate strikes, including against civilian infrastructure. At the same time, he has a track record of setting deadlines that he later does not adhere to.

Trump stated he intends to hold a press conference at 1 PM on Monday, and also posted about a deadline ending at 8 PM Eastern time on Tuesday, without providing any additional details on what that means. On March 26, Trump gave Iran a 10-day deadline to reopen the Strait of Hormuz, a deadline that expires Monday evening.

Market Predictions and Warnings from OPEC+

Vandana Hari, founder of Vanda Insights in Singapore, said, "Superficially, the war has entered a new phase of sharp escalation, which supports prices." However, she added that "the expectation of a significant and swift price correction if a solution is reached creates hesitance in increasing positions currently."

The OPEC+ alliance warned after a meeting held over the weekend that the damage to energy assets due to the war will have lasting effects on oil supplies even after hostilities cease.

Alliance members agreed to increase production quotas, indicating their intentions as oil exports from the Arabian Gulf remain limited.

Signs of Supply Tightness

As the war enters its sixth week, there are also signs of acute concern regarding near-term supplies.

The spot spread for Brent crude, which is the difference between the two nearest contracts, has widened to over $10 a barrel in a bullish backwardation scenario. This is the widest spread since the conflict began, far exceeding levels recorded in 2022 at the start of the Russian war in Ukraine.

Ahead of the long Easter holiday, there were indications of severe tightness in the actual oil market. The dated Brent crude surged, which is the price of shipments traded in the North Sea and the key indicator for actual barrel prices worldwide, above $140, reaching its highest level since 2008.

Strait of Hormuz at the Center of the Conflict

Control over the Strait of Hormuz, which connects the Arabian Gulf to wider markets, especially in Asia, remains a central focus of the conflict.

Iran has maintained control over the waterway, allowing only a limited number of vessels to pass, including a French container ship and an oil tanker owned by Japanese entities, as well as ships from Malaysia and Pakistan.

Iran announced on Saturday that Iraq would be exempt from its restrictions in the strait, which could allow for an increase in oil shipments. However, an Iraqi official expressed caution, stating that the flow of exports would depend on whether shipping companies are willing to risk entering this commercial corridor.

The Omani foreign ministry, located across the strait from Iran, stated in a post on the X platform on Sunday that it discussed with Iran options to ensure "smooth flows" through the waterway, indicating that both parties have provided proposals for consideration.