Oil Selloff Outruns Reality in Hormuz

That is not a peace deal. It is a list… Then the details showed up. A senior Iranian source said the agreement was still not final. Iran wants the regional war ended, sanctions relief, an end to the port blockade and compensation before it allows ships to use the central channel. The United States is not signing off on those conditions. Trump said Thursday that Washington was not returning to the prior ceasefire terms. Iran’s Revolutionary Guards announced an agreement with Oman over control and revenue sharing in the Strait of Hormuz. That was enough to start the selling because the market immediately priced in more Middle East barrels reaching buyers. The week is not over, but the setup is clear. WTI sold a corridor that has not opened. The physical supply data does not support the size of the weekly break. Thursday changed the tone. WTI bounced after Iran fired on a vessel near Oman and President Trump rejected terms tied to reviving the June Iran ceasefire agreement. The market stopped trading a Hormuz reopening and started trading the fact that there is still no final deal. WTI crude oil futures were trading at $83.51 late Thursday, down $3.13, or 3.61%, for the week. The market opened near the weekly high at $86.57, then broke to $79.62 as traders sold on reports that Iran, Oman and the United States were moving toward a workable shipping arrangement through the Strait of Hormuz. WTI crude oil futures were trading at $83.51 late Thursday, down $3.13, or 3.61%, for the week. The market opened near the weekly high at $86.57, then broke to $79.62 as traders sold on reports that Iran, Oman and the United States were moving toward a workable shipping arrangement through the Strait of Hormuz. Thursday changed the tone. WTI bounced after Iran fired on a vessel near Oman and President Trump rejected terms tied to reviving the June Iran ceasefire agreement. The market stopped trading a Hormuz reopening and started trading the fact that there is still no final deal. The week is not over, but the setup is clear. WTI sold a corridor that has not opened. The physical supply data does not support the size of the weekly break. Iran and Oman Have an Understanding, Not a Reopening Iran’s Revolutionary Guards announced an agreement with Oman over control and revenue sharing in the Strait of Hormuz. That was enough to start the selling because the market immediately priced in more Middle East barrels reaching buyers. Then the details showed up. A senior Iranian source said the agreement was still not final. Iran wants the regional war ended, sanctions relief, an end to the port blockade and compensation before it allows ships to use the central channel. The United States is not signing off on those conditions. Trump said Thursday that Washington was not returning to the prior ceasefire terms. That is not a peace deal. It is a list of demands attached to a possible navigation plan. The market has seen this pattern before. Iran signals flexibility. Oil sells. Then traders find out the ships are still moving under Iranian conditions, the political terms are unresolved and the United States is not offering the concessions Tehran wants. WTI does not need a formal closure of Hormuz to hold a premium. It only needs shipping to remain uncertain. The Tanker Data Does Not Back the Selloff The most important number of the week was not the crude inventory report. It was the tanker count. Ten commodity vessels passed through Hormuz Wednesday, up from eight the previous day. That sounds like progress until it is put next to the 10-day average of 15. Traffic is improving from nearly nothing, but it is nowhere near a normal supply system. A vessel was struck Thursday as it attempted to move through the area. The actual oil flows look even worse. Only 2.3 million barrels per day moved through Hormuz in August. The strongest week reached 4.26 million barrels per day. Before the war, the waterway handled about 20% of global oil and LNG shipments. Asia is not receiving the barrels that would confirm a genuine reopening. August crude imports were running at 23.12 million barrels per day, down from 23.36 million in July and well below the 26.91 million-barrel prewar average. India’s Middle East arrivals were about half of prewar levels. The market sold the promise of barrels. The barrels have not shown up. The EIA Report Was Mixed, Not Bearish The EIA reported a 100,000-barrel increase in commercial crude inventories. That is a small build, especially after crude imports fell 435,000 barrels per day to 6.2 million barrels per day. Crude stocks stand at 428.9 million barrels, only 1% above the five-year average. The important part of the report was below the crude line. Gasoline inventories fell 2.5 million barrels and sit 6% below the five-year average. Distillate inventories dropped 2.2 million barrels and are 14% below average. Refiners were running at 97.4% of capacity, near the top of the seasonal range, yet fuel inventories still declined. That is not a report that gives crude sellers much confidence. Lower imports helped keep the crude build small. High refinery runs did not prevent gasoline and diesel stocks from falling. The bearish side is demand. Total products supplied over the past four weeks averaged 20.5 million barrels per day, down 3% from a year ago. Gasoline supplied was down 1.1%. Distillate demand was down 2.2%, while jet fuel was down 2.3%. The United States is using less fuel. It also has less gasoline and diesel in storage than normal. Those two facts are pulling the market in opposite directions. Weekly Light Crude Oil Futures Technical Analysis Trend Indicator Analysis October WTI crude oil futures are trading lower for the week. But the technical bounce from $79.62 demonstrates that investors are showing respect for the intermediate 50% level at $79.20. Overcoming the 61.8% retracement level at $82.05 will indicate the short-covering is getting stronger. However, that only gets us a range-bound trade. Traders need another bullish catalyst to drive the market through $88.07 and into $91.27. If $79.20 fails as support, then this will open the door for a further decline into the long-term retracement zone at $73.40 to $69.18. For longer-term traders, the focus should be on the 52-week moving average at $69.63, which has been supporting the rally since late February. Weekly Technical Forecast The direction of the Weekly October Crude Oil futures contract for the week ending September 4 is likely to be determined by trader reaction to $82.05. Bullish Scenario A sustained move above $82.05 will signal the presence of strong buyers. This will put the market in a position to retest the minor swing top at $87.69 and the main top at $88.07. The latter is a potential trigger point for an acceleration into another main top at $91.27 and eventually, the psychological $100 level. Bearish Scenario A sustained move under $82.05 will indicate the presence of sellers. The first area of focus will be the 50% retracement level at $79.20. This is the trigger point for an even steeper decline into $73.40 to $73.10. Taking out the main bottom at $73.10 will likely lead to a test of the support cluster at $69.63 to $67.13. Weekly Outlook WTI is lower for the week because traders believe some kind of Hormuz arrangement is coming. That trade only works if tanker traffic and Middle East exports begin to confirm it. For now, they do not. The bears have diplomacy, weaker U.S. fuel demand and a crude market that already removed more than $3 for the week. The bulls have a corridor with no final agreement, tanker traffic still below normal, Asian imports well below prewar levels and a vessel strike that showed the route remains dangerous. WTI is likely to remain a sell-the-diplomatic-headline, buy-the-shipping-risk market. A final agreement backed by sustained tanker traffic will keep pressure on prices. Another attack, failed negotiations, or fresh evidence that Gulf exports remain restricted will put the premium back into crude quickly. Technically, $88.07 is the trigger point for an acceleration to the upside, but until we get a strong enough catalyst to encourage traders to take out offers aggressively, WTI is likely to remain governed by traders selling rallies into the major resistance.