Oil prices fell on Thursday, after rising 4 percent in the previous session, with Iran open to continuing diplomacy to end the war with the United States, despite the continuing dispute between the two countries over ways to reach an agreement.
Brent crude futures fell 92 cents, or 0.9 percent, to $102.16 a barrel by 04:00 GMT, while West Texas Intermediate crude fell 77 cents, or 0.8 percent, to $91.39.
A senior Iranian official told Reuters that Tehran and Washington are still divided over how to end the war, but the diplomatic path must continue. He added that Iran is reviewing the American response to its peace proposals, which give priority to lifting the American naval blockade of Iranian ports and reopening the Strait of Hormuz.
Priyanka Sachdeva, head of market research at Philip Nova, said that the decline in oil reflects “the decline of part of the geopolitical risk premium,” with supplies from the Gulf recovering and hopes rising for a diplomatic breakthrough between the United States and Iran.
She added that Brent crude oil maintains a greater premium linked to geopolitical risks and sea lanes, given global crude’s greater exposure to disturbances in the Middle East and the Strait of Hormuz, while West Texas Intermediate crude oil benefits from the fact that US supplies are relatively more immune to these disturbances.
Earlier Wednesday, Iranian Security Chief Mohsen Rezaei said that the Strait of Hormuz would not be reopened unless Iranian conditions were met.
US Secretary of State Marco Rubio told reporters that reaching an agreement with Iran will require hard work over a period of time, adding that President Donald Trump still has military options.
US crude stocks
In the petroleum products market, traders followed developments related to the possibility of imposing restrictions on US diesel exports. Low-sulfur diesel futures fell by about 5 percent during mid-Wednesday trading, after Politico reported that the Trump administration was preparing plans to impose a ban on diesel exports for a period of 90 days, before the White House denied this.
US Energy Secretary Chris Wright said earlier Wednesday that banning diesel exports would not succeed, despite Trump announcing his support for such a step.
Analysts and market observers warned that such a measure would not contribute much to reducing high energy prices, and could lead to a reduction in global supplies and increased economic turmoil.
Data from the US Energy Information Administration showed that inventories of refined products, which include diesel and heating oil, fell by 428 thousand barrels to 107.4 million barrels during the past week.
On the other hand, US crude oil inventories rose by 3 million barrels to 426.4 million barrels, while analysts polled by Reuters expected them to decrease by about 641 thousand barrels.
Oil movements come at a time when developments in the US-Iranian war and the path of supplies through the Gulf and the Strait of Hormuz remain the most prominent factor in determining the risk premium in the market, while investors are also monitoring any indications of progress in the diplomatic track between Washington and Tehran.
The US Treasury announced that it will buy up to $6 billion of bonds maturing over a period of 20 to 30 years, in a repurchase operation scheduled for Thursday, maintaining the target level in the last long-term debt repurchase operation.
The operation comes after the Treasury purchased $5.2 billion of bonds with maturities ranging between 10 and 20 years in the first operation to buy back long-term debt since its surprise announcement on August 1 that it would at least double the size of these operations.
The value of previous purchases was below the target of $6 billion, an indication of the limited volume of bonds that investors were prepared to sell at the prices prevailing in the market at the time.
Bonds with a maturity between 20 and 30 years are expected to attract greater offers from investors compared to shorter-term bonds. Which may allow the Treasury to buy back a larger amount of debt.
The repurchase operations come at a time when Treasury bond yields have risen since the ministry announced last August the expansion of the “debt repurchase program.” Treasury Secretary Scott Besent indicated during a recent hearing before Congress that yields might have risen to higher levels had it not been for the increase in the volume of repurchase operations.
The Treasury uses bond repurchase operations to manage the existing debt portfolio and improve the liquidity of some issues. The increase in the size of these operations comes at a time when the US Treasury market is facing large issuances and a rise in long-term borrowing costs.
US stocks fell on Wednesday, while the yield on 10-year Treasury bonds jumped to their highest level since 2007, with traders re-pricing interest rate expectations after data showed US corporate activity accelerating to the highest level in more than five years, amid continuing inflation pressures.
The 10-year Treasury bond yield rose 8.7 basis points to 5.054 percent, hitting the highest level since 2007, while the two-year bond yield, which is more sensitive to monetary policy expectations, rose 8.49 basis points to 4.862 percent, its highest level since June 2024.
These moves came as bets rose on the Federal Reserve raising interest rates at its next meeting. Federal funds futures are currently pricing in a 73 percent probability of a rate hike in October, compared to 53 percent previously.
The Federal Reserve raised the interest rate last week by 25 basis points to a range between 3.75 and 4.00 percent, the first increase since July 2023, with inflation continuing above the central bank’s target of 2 percent.
Michael Barr, a member of the Federal Reserve Board of Governors, said on Wednesday that the bank took an important step last week to recalibrate short-term borrowing costs with the aim of reducing inflation, adding that further increases in interest rates may be necessary.
Strong economic activity
Expectations of monetary tightening were strengthened after the Standard & Poor's Global Composite Purchasing Managers' Index in the United States rose to 58.4 points in September, from 56 points in August, recording the highest reading since July 2021.
The index reflected a strong increase in new orders, along with improved industrial production and employment, indicating continued strength in economic activity despite rising borrowing costs.
Adam Patten, chief currency analyst at Investing Live, said that the continued leadership of the services sector, coupled with the sharp rise in factory production, confirms the strength of the economy at a time when the Federal Reserve is leaning toward a more stringent monetary stance.
The rise in bond yields led to increased pressure on stocks, as the Dow Jones Industrial Average fell 0.18 percent, the Standard & Poor's 500 fell by 0.53 percent, while the Nasdaq Composite fell 1.05 percent.
The wave of decline extended to global markets, as the European Stoxx 600 index fell 0.27 percent, and the MSCI global stock index fell 0.51 percent, after four consecutive sessions of gains.
Oil and geopolitics
In energy markets, oil prices rose as investors awaited the possibility of talks to end the war between the United States and Iran, coinciding with preparations for the upcoming summit between US President Donald Trump and his Chinese counterpart Xi Jinping in Washington.
West Texas Intermediate crude rose 1.49 percent to $91.87 a barrel, while Brent crude rose 2.39 percent to $101.62.
Oil prices had declined over the previous days with improved supplies from the Gulf region and growing hopes that a diplomatic solution to the conflict could be reached, but a state of caution still dominated the markets.
Cole Smid, CEO and portfolio manager at Smid Capital Management, said that the markets witnessed a series of contradictory movements regarding the chances of reaching an agreement, which makes investors hesitant to take large positions in light of the rapid change in political headlines.
Dollar and gold
Rising bond yields and rising interest rate hike expectations supported the dollar, which hit its highest levels in several weeks against the euro, the pound sterling and the Canadian dollar.
The euro fell 0.5 percent to $1.1389, its lowest level since July 29, while the dollar rose 0.56 percent against the yen to 158.25 yen, with continued caution about the possibility of Japanese authorities intervening if the US currency approaches the 160 yen level.
On the other hand, spot gold fell 1.55 percent to $4,287.05 per ounce.
The market movements come at a time when they are also anticipating the repercussions of rising energy prices on global inflation, especially in Europe, where any potential US ban on diesel exports may lead to increased pressure on prices, given the region’s dependence on US supplies of fuel.
