Oil Futures Fall Amid Hopes for Quick Restoration of Saudi Supplies

(MENAFN- MENAFNEditorial) Crude oil futures continue to decline today by nearly 2 percent across both West Texas Intermediate and Brent benchmarks, trading near their lowest levels in nearly two weeks.
The ongoing drop in crude prices comes amid a lull in Middle East escalation, alongside optimism about the potential restoration of Saudi exports through the Red Sea within days. In contrast, millions of barrels of Saudi crude continue to be exported through the Strait of Hormuz.
The Wall Street Journal reported, citing sources familiar with Saudi Aramco operations, that repairing the East West pipeline and partially restoring flows through it might be possible within days. However, according to Kpler data cited by Reuters and the Wall Street Journal, even with the line and the port of Yanbu still out of service, the Kingdom can export nearly 2.4 million barrels per day of crude and condensate through the Strait of Hormuz. Several supertankers carrying 24 million barrels of Saudi crude have left the Strait of Hormuz since the vital pipeline was attacked. We also see narratives among analysts and experts expressing optimism about a return to negotiations between the United States and Iran, especially with the possibility of a meeting between President Donald Trump and Masoud Pezeshkian on the sidelines of the UN General Assembly session in New York. This narrative could inject optimism among traders, potentially fueling the downward trend in prices.
However, we remain stuck in the gray state represented by a formula of neither peace nor war. The energy market on the ground remains largely disrupted amid high risks of renewed escalation. Rerouting more exports toward the Strait of Hormuz risks concentrating targets further within the strait, which could raise the cost of future escalations. Moreover, Iran's targeting of ships in the strait has not stopped, as the United Kingdom Maritime Trade Operations reported a tanker targeted by a projectile on Monday.
On the other hand, increasing reliance on tankers and ship-to-ship transfer methods to cross the strait would add pressure to already high shipping costs. Earlier this month, the cost of chartering supertankers to pass through the Arabian Gulf and the Strait of Hormuz crossed the 1 million dollar per day mark, reflecting an estimated cost of around 26 dollars per barrel, or about a quarter of the cargo value, according to Windward data cited by the Wall Street Journal.
Furthermore, this growing concentration of high-value targets such as export ports and supertankers in the strait, and the accompanying risks, coincides with a lack of signs that either the United States or Iran might make concessions on any pending issues. Senior Iranian officials have continued to emphasize this through a series of recent statements, most notably what Mohsen Rezaei, head of Iran's Supreme National Security Council, stated in an interview with Al Jazeera when he emphasized his country's conditions for returning to negotiations, namely the release of frozen Iranian funds, ending the war on all fronts, stopping aggression, non-interference in Iranian internal affairs, and lifting the naval blockade.
I do not believe Trump would tend to offer any concession directly to Iran before the crucial midterm elections for him and his party. Even if we see any step suggesting otherwise, I do not think it will be taken seriously. I will aim only to fabricate an artificial drop in energy prices, exactly as happened when the forgotten memorandum of understanding was signed last June. Instead, the US administration may be preparing to escalate its military action against Iran, as the Central Command of the Iranian military announced that it has information indicating the United States is preparing an attack against the country.
Trump may resort to postponing any major military action deep within Iranian territory until after the elections to avoid increasing the political cost of the war through continuing extremely high energy prices. The national average for a gallon of diesel today stands at 6.5276 dollars, representing a new record, and the price of a gallon of gasoline has risen to 4.4750 dollars, continuing to approach the record peak set in 2022 at 5.0165 dollars, according to American Automobile Association AAA figures.
Therefore, I believe the likely scenarios over the coming weeks are the continued dominance of the current gray state, which ultimately reflects very wide sideways paths for crude prices, consisting of sharp rises followed by sharp drops. However, this hypothesis may remain under threat if the conflict spirals out of control, represented by a potential shift from limited attacks against Iran to reciprocal strikes on oil production, export, and refined-product facilities across various regional fronts. This is what happened in the latest round of escalation with the Houthis in Yemen, but the market may recover soon if escalation does not return. Furthermore, this hypothesis might dissipate entirely after the elections in the United States and Israel, and we cannot rule out a return to a full-scale regional war. A high loss for the Republican Party could push Trump to retaliate severely against Iran, involving an escalation with uncalculated consequences.
Unless we see a serious return to negotiations between Iran and the United States involving mutual concessions, escalation prospects may remain extremely high, potentially keeping crude prices elevated for an extended period.

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