Oil markets were steady in Asian trade on Wednesday following a sharp selloff the day before, with investors taking note of diplomatic developments between Washington and Tehran that appeared to lessen immediate supply concerns.
Price moves - As of 21:18 ET (01:18 GMT), April Brent futures had inched up 0.1% to $67.51 per barrel, while West Texas Intermediate (WTI) futures also rose 0.1% to $62.40 per barrel. Both contracts had fallen in the prior session, with Brent slipping nearly 2% and WTI down about 1%.
Diplomatic developments temper premiums - Reports on Tuesday indicated that U.S. and Iranian negotiators had reached an understanding on key "guiding principles," a step that market participants interpreted as increasing the prospects of a deal that could, over time, allow more Iranian crude to return to global markets. Traders said the prospect of reduced supply disruption risk helped dampen risk premiums embedded in oil prices.
Iranian Foreign Minister Abbas Araqchi cautioned that the reported understanding does not mean a deal is imminent, a point that leaves the situation unresolved despite the market reaction.
Why markets are watching the talks - The negotiations carry particular weight for energy markets because Iran is a sizeable oil producer and because of its geographic position along the Strait of Hormuz, a narrow shipping route through which about one-fifth of daily global oil consumption transits. Any change to flows through that chokepoint is closely monitored for its potential to affect supply.
Market structure and trading conditions - Trading volumes in Asia were light as several regional exchanges remained closed for Lunar New Year observances, which contributed to subdued activity and muted price movement.
Data and macro events in focus - Participants were also adopting a cautious stance ahead of weekly U.S. supply data, with the American Petroleum Institute set to publish its estimates later on Wednesday and the Energy Information Administration scheduled to release official figures on Thursday. These reports are followed for indications of evolving supply trends.
Beyond inventories, traders were watching broader macroeconomic signals for clues on demand and interest-rate expectations. Minutes from the Federal Reserve's January meeting were due later on Wednesday, and the U.S. personal consumption expenditures inflation reading was expected on Friday - both seen as relevant to the interest-rate outlook and, by extension, fuel demand prospects.
Key points
- Brent and WTI futures rose 0.1% in Asian trade after nearly 2% and 1% declines respectively in the prior session - impacting energy markets and commodity traders.
- Reported progress in U.S.-Iran talks reduced immediate supply disruption concerns, a development watched closely by oil markets and shipping interests related to the Strait of Hormuz.
- Market participants remained attentive to U.S. inventory releases and macroeconomic data that could influence demand and interest-rate expectations, affecting energy and financial sectors.
Risks and uncertainties
- The reported understanding between Washington and Tehran does not amount to a finalized agreement, leaving the potential for further negotiation uncertainty that could affect oil supply - relevant to energy markets and maritime shipping.
- Thin trading volumes because of Lunar New Year holidays could mask underlying volatility or delay more definitive price discovery, posing execution and liquidity risks for traders and market participants.
- Upcoming data releases - the API and EIA inventory reports, the Fed minutes, and the U.S. PCE inflation print - introduce short-term uncertainty about supply, demand and the interest-rate outlook, with implications for fuel demand and broader financial market positioning.