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EMEA Oil Update: Oil Drops as Details of US-Iran Peace Efforts Emerge

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Oil futures fell on Wednesday as traders pondered the significance of a US-Iran peace framework, which, if agreed upon, would require the full restoration of traffic through the Strait of Hormuz within a month.

Front-month Murban crude futures dipped 4.5% to $90.80 per barrel, while Brent futures dropped 4.2% to $95.45/bbl.

Iranian state television said it had obtained a draft framework of an agreement with the US to end the conflict, containing these details, several media outlets reported.

Under the proposed framework, Iran would restore commercial shipping through the Strait of Hormuz to pre-war levels within a month, while the US would lift its naval blockade and withdraw nearby military forces.

However, HFI Research pointed out that even if a deal was signed immediately, the logistics of the proposed 60-day negotiation window mean that no meaningful volume of shut-in Middle Eastern production will physically return to the water before mid-summer.

Macquarie strategists outlined a base-case scenario indicating that if a credible, verified deal is accepted by the market, crude prices could experience a short-lived sell-off, pushing oil down by roughly $20 per barrel in a week.

However, energy trading desks are increasingly skeptical about talk of resolution after several false dawns in the conflict so far.

The oil market now awaits crude inventory data from the US Energy Information Administration.

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World's Oil, Gas Use Needs to Fall if Hormuz Closure Lasts, Says US Fed Representative

Global oil and gas consumption will be forced lower if the Strait of Hormuz remains closed for much longer, with efforts to raise production representing only a fraction of what has been lost, according to the Dallas Federal Reserve President Lorie Logan.Speaking at the Bank of Japan Institute for Monetary and Economic Studies Conference in Tokyo on Wednesday, Logan warned that oil and gas consumption would "need to fall more meaningfully than it has so far".About one fifth of the world's liquefied natural gas and crude oil was shipped via the Strait of Hormuz prior to the outbreak of the Iran war. Iran has followed through on threats to fire at vessels attempting to cross strait.Logan said that "the economic consequences would depend on the degree to which end users can switch to other energy sources or use energy more efficiently, versus curtailing economic activity."She noted that US domestic oil production was set to increase by no more than 250,000 barrels per day by the end of 2026 and 500,000 barrels per day in 2027, based on a recent survey of industry executives by the Dallas Fed.Meanwhile, the protracted closure of the Strait has reduced global supplies by 13 million barrels per day, she said, noting that inventory drawdowns have filled the shortfall so far, a back-up which was "finite"."One way or another, I expect energy markets to come into rough balance before too long," she said, adding that "if the molecules aren't available, the world can't consume them."

Oil & Energy

EMEA Natural Gas Update: Futures Down 4% With US-Iran Peace Efforts on Track Despite Strikes

European natural gas futures fell on Wednesday as peace talks appeared to remain on track despite US strikes against Iran earlier this week in the midst of a ceasefire.The front-month Dutch TTF contract was down 3.85% at 45.645 euros ($53.13) per megawatt hour, while the UK NBP front-month contract fell 3.75% to 111.000 British pence ($1.49) per therm.On Tuesday, Iran's Foreign Ministry condemned the latest US strikes as "an act of bad faith" and "a definitive violation of the ceasefire," but it did not pull out of peace talks being mediated by Pakistan and Qatar.However, one reason for the strikes was to intercept Iranian fast-attack attempting to lay mines under water, according to the US Central Command.Iran's Revolutionary Guard said that a renewed war against the US was "unlikely," while continuing to warn against further aggression against the country, marking a major de-escalation in the conflict, according to a report by Al Jazeera.Meanwhile, the Strait of Hormuz, through which one-fifth of global LNG flowed before the war, remained effectively closed for the 13th week running, with just two vessels transiting over the past 24 hours, according to the Hormuz Strait Monitor.This has become a significant concern for European buyers, according to Daniel Hynes, a senior commodity strategist at ANZ, as the Strait's protracted closure forces them to compete with Asian buyers now also buying LNG on the spot market.According to geopolitical strategist Cyril Widdershoven, the markets have yet again misread the latest developments in the Middle East, with the markets celebrating diplomacy, while completely ignoring the ground realities, which include "extensive mine-clearing operations" in the Hormuz.Widdershoven noted that even if the Strait were to fully reopen, insurers would remain cautious, while ship owners price the geopolitical risk into every voyage, keeping prices elevated.At the same time, European markets are grappling with low inventory levels, at just 38.52% of capacity, compared to 46.31% by this time last year, according to data from Gas Infrastructure Europe.Inventories were also significantly below the five-year average for this period, at 52.5%, according to the Swiss Federal Office of Energy.This comes at a critical juncture for the region, as it experiences "record-breaking heatwaves" with a heat dome developing over the continent, according to Severe-Weather EU.That means gas-fired power stations will need more fuel to meet demand from air conditioner use.

Oil & Energy

Market Chatter: Draft Peace Deal Proposes Iran Restoring Hormuz Traffic to Pre-War Levels in 1 Month

A draft peace framework between the US and Iran, seen by Iran's state broadcaster, proposes Iran restoring commercial transit to pre-war levels within a month of signing, media outlets reported on Wednesday.The draft also includes a requirement for the withdrawal of US troops from Iran's vicinity.Ship traffic through the Hormuz Strait would be handled by Iran and Oman, according to the draft, the reports said.The draft has not been finalized yet and would require "tangible verification" for Iran to move forward with it, Iranian TV said, according to the reports.(Market Chatter news is derived from conversations with market professionals globally. This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed.)