Oil prices have edged higher on Friday morning as markets remained cautiously hopeful about peace efforts between the US and Iran ahead of the long holiday weekend in the US. Brent futures climbed 46 cents, or 0.64%, to $72.26 a barrel as of 0407 GMT, while West Texas Intermediate was up 32 cents, or 0.47%, to $69.01 a barrel, according to Business Standard. US markets will be closed on Friday ahead of the US Independence Day holiday on Saturday, adding to the cautious market sentiment. During the prior session the two benchmarks hit their lowest levels since before the US-Israeli war on Iran began in late February, with Brent for the week up 0.35% and WTI up 0.43% - the smallest weekly movements for both in months. The recent gains reflect renewed optimism about the diplomatic process, with oil prices slipping around 1% on Tuesday after reversing yesterday's gains and remain on course for their largest monthly decline in years, though the latest gains show cautious market sentiment about potential progress in US-Iran relations.
Iran has significantly increased its oil exports since the US lifted its naval blockade, with the country exporting more than 40 million barrels of oil since the US lifted its naval blockade, as reported by CNBC TV18. This substantial volume increase has contributed to a major buildup of barrels at sea and added to market supply concerns. Russian shipments are surging to records, causing a major buildup of barrels at sea, creating additional supply pressure in global markets. The increased export capacity comes as Iran reiterates its determination to control maritime traffic through the strait, a reminder that key sticking points including the country's nuclear program and end to fighting in Lebanon remain in place. Iran has reiterated its intention to play a greater role in overseeing maritime traffic through the strait, while broader issues including its nuclear programme and regional security concerns remain unresolved despite the current 60-day ceasefire framework.
US negotiators Jared Kushner and Steve Witkoff held talks in Qatar, with technical discussions between the two sides continuing as efforts to secure a more durable ceasefire gather pace, according to CNBC TV18. The duo were in Doha for indirect talks to ease tensions over the critical waterway that connects Persian Gulf producers to world markets. Senior US officials said indirect discussions between Washington and Tehran in Doha had been constructive, with the US and Iran on June 17 signing a memorandum of understanding (MoU) aimed at ending the conflict, under which both sides agreed to cease hostilities and reopen the Strait of Hormuz. However, recent attacks around Hormuz have marred negotiations and the ceasefire remains fragile, meaning some geopolitical risk premium is likely to remain in prices. Iran has reiterated its determination to control maritime traffic through the strait, indicating that key sticking points including the country's nuclear program and end to fighting in Lebanon remain in place and stand to complicate discussions during the 60-day ceasefire window.
With the growing supply pressure, the spread between front month Brent and one month forward turned negative on June 24, while the six-month spread turned negative on Thursday, as reported by Business Standard. When that spread is negative, the market is in contango, signaling an oversupplied prompt market. ING analysts noted that the return of this supply coincides with continued SPR releases, referring to the US Strategic Petroleum Reserve. "The forward curve moving into contango, we could start to see more buying in the market," they added. Gulf producers are working to ramp up production with the reopening of the Strait of Hormuz, which prior to the beginning of the war carried one-fifth of the world's daily supply of oil and liquefied natural gas. At least five supertankers carrying a total of 10 million barrels of Saudi oil have exited the Strait of Hormuz, with Saudi Aramco switching to spot pricing to speed sales in Asia, according to trade sources and shipping data.
Markets are currently pricing around a 60% probability of a 25-basis-point rate hike in September, with some investors also seeing scope for up to three rate hikes this year. Attention this week will be on Federal Reserve Chair Kevin Warsh's speech at the ECB Sintra Forum, as well as Thursday's U.S. non-farm payroll report, both of which could provide further clues over the outlook for U.S. interest rates. Ahead of that, today's JOLTS job openings and Consumer Confidence figures will provide further insight into the resilience of the U.S. labour market. Investors also welcomed the U.S. Supreme Court's decision allowing Federal Reserve Governor Lisa Cook to remain in her post while legal proceedings continue, the ruling removes a degree of uncertainty surrounding the Fed's independence at a time when markets remain highly focused on monetary policy. Whether the rally extends into the shortened week ahead of the July 4 holiday will depend on whether the Iran ceasefire holds and if semiconductor momentum carries through.
