Oil prices fell below $100 a barrel as hopes that Iran could reopen the Strait of Hormuz within days and the restart of Saudi Arabia’s East-West pipeline raised the prospect of more Middle East crude reaching global markets, easing fears of a prolonged supply squeeze.
Brent, the benchmark for two thirds of the world's oil, dropped 2.64 per cent to $97.69 a barrel at 3.09pm UAE time on Tuesday, while West Texas Intermediate, the gauge that tracks US crude, fell 3.20 per cent to $89.41 a barrel. Gasoline futures declined 2.1 per cent and heating oil slid 3.1 per cent. The S&P GSCI commodity index was down 1.5 per cent.
Iran is prepared to reopen the Strait of Hormuz within a week if the US eases military pressure and lifts its blockade of Iranian ports, a senior Iranian official told Reuters on Tuesday. Tehran has also submitted a proposal to Washington through mediators, raising hopes of a diplomatic breakthrough after nearly seven months of disruption to one of the world's most important energy corridors.
Saudi Aramco also restarted its East-West pipeline on Tuesday at a reduced rate, Reuters reported, citing three people familiar with the matter, with crude exports from the Red Sea port of Yanbu expected to resume later in the day.
The pipeline is the kingdom's principal workaround for Hormuz, carrying crude across the peninsula to Yanbu. It was shut on September 13 after drone attacks damaged pumping infrastructure, halting crude loadings at the Red Sea port and forcing Aramco to cancel some cargoes to European customers.
Shipments through Hormuz
Saudi Arabia has since sharply increased shipments through Hormuz. Saudi crude moving through the strait averaged 2.9 million barrels per day over six days to September 18, up from about 700,000 bpd in August, according to JP Morgan analysts citing satellite data.
Aramco loaded about 14 million barrels of crude on seven very large crude carriers in the Gulf on Sunday, according to TankerTrackers.com data Reuters cited. The rise in Saudi shipments pushed Brent below $100 on Monday for the first time since September 9.
Saudi Arabia is transporting crude through a mix of direct voyages through the Strait of Hormuz as well as through ship-to ship operations off the coast of Oman, mainly at Sohar in the Gulf of Oman, according to analysts.
"Crude is loaded in the Gulf onto shuttle tankers, taken through Hormuz, then transferred ship-to-ship off Oman, at Sohar in the Gulf of Oman," Noureldeen Al Hammoury, chief market strategist at Equiti Group, said.
"The long-haul VLCC picks up the cargo outside the strait and does not have to enter the Gulf."
Saudi Arabia is expected to continue increasing eastern or Hormuz exports while alternative lines remain constrained, said Ana Subasic, trade risk analyst at Kpler.
“The scale will depend on how quickly partial pipeline capacity is restored and on security conditions around Hormuz," she added.
However, broader traffic through Hormuz remains severely constrained. Only two visible commercial vessels passed through the strait on Monday, compared with about 125 a day before the war began on February 28, according to preliminary shipping data. The figures exclude vessels travelling with their Automatic Identification System transponders switched off.
Two tankers were also attacked in the strait, underscoring the risks that remain despite growing expectations of a diplomatic breakthrough.
A sustained retreat in crude prices would offer relief to policymakers confronting an energy-driven inflation shock. The Federal Reserve raised interest rates last week for the first time since 2023, lifting its benchmark rate to 3.75 per cent to 4 per cent in a unanimous vote and joining the European Central Bank and Bank of Japan in tightening monetary policy.
US retail diesel has reached $6.50 a gallon, its highest level this year.
“The central bank moves this week are a rational response to an energy crisis that monetary policy cannot fix,” said Claudio Galimberti, chief economist at Rystad Energy.
“Brent at $100 and diesel at $6.50 a gallon are already squeezing consumers. The key question now is whether this energy shock remains primarily inflationary or starts tipping into something that resembles a slowdown.”
Traders are also positioning for Thursday's meeting between US President Donald Trump and Chinese President Xi Jinping in Washington, watching for any signal on secondary sanctions against buyers of Iranian crude and China's willingness to act as a swing consumer.
