Market News

(Bloomberg) -- Oil edged lower as traders deciphered contradictory messaging surrounding a diplomatic push by the US to end the war with Iran.

Global benchmark Brent settled near $102 a barrel. The possibility of a US resolution with Iran shaved away some of the risk premium that’s supported prices this month as the conflict upended global energy shipping.

After navigating weeks of extreme volatility, traders are taking to the sidelines, pushing liquidity lower. Some investors saw the lull in prices as a rare off-ramp after crowding into long positions since the start of the month. Still, the market continues to flinch at each new development, with futures bouncing in a wide range and traders parsing every comment to gauge the possible reopening of the vital oil and gas transit route, the Strait of Hormuz.

Brent at one point fell as much as 7%, before paring losses on Wednesday.

The White House insisted that peace talks with Iran are ongoing, even as Tehran publicly rejected US overtures and issued fresh conditions of its own to end the conflict.

“The market is trading like a cease fire is more likely than not, but I also wonder if it’s a lack of shorts left standing to cover, leading to such extreme volatility,” said Scott Shelton, an energy specialist at TP ICAP Group Plc.

Several outlines for potential peace deals circulated on Wednesday. Iranian state media said an unnamed senior security official has listed five conditions for the US and Israel, including reparations for damages and recognition of its authority over the Strait of Hormuz.

The US, for its part, compiled a 15-point peace proposal that Pakistan delivered to the Islamic Republic, according to people familiar with the matter, highlighting the urgency within Trump’s administration to resolve a conflict it started alongside Israel almost a month ago.

Adding to confusion over the conflict’s trajectory, the White House ordered the 82nd Airborne Division to deploy about 2,000 soldiers to the region. It has also dispatched two Marine Expeditionary Units, as more planes and ships continue to arrive in the region.

“If Iran fails to accept the reality of the current moment,” White House Press Secretary Karoline Leavitt told reporters on Wednesday, Trump “is prepared to unleash hell.”

Still, Leavitt said the US has been in productive talks with Iran over the past three days. Vice President JD Vance may travel to Pakistan for Iran talks this weekend, CNN reported.

“The mismatch in words and actions is reminiscent of the pre-war negotiations, while a mass military presence is being built up in the region, driving market skepticism,” said Ryan McKay, senior commodity strategist at TD Securities. “Unless a deal leads to a swift resumption of flows, it is inevitable that benchmark prices will move sharply higher.”

Oil remains on track for a substantial monthly surge after a volatile run of trading as investors tracked the fallout from the war. At the heart of the conflict, Tehran has moved to exert control over the Strait of Hormuz waterway, choking off supplies of crude and gas from Persian Gulf producers to global markets and triggering concerns of an energy crunch.

In another sign of fading risk premium, the Oman benchmark in the Middle East shed shed 17% to settle near $130 a barrel on Wednesday, with similar declines reflected in Murban crude from the United Arab Emirates. Notably, both contracts are relatively illiquid as they approach end-month expiry, a factor that may be amplifying price swings.

The US’s public position on the conflict has shifted rapidly in recent days. At the weekend, Trump raised the stakes with a threat to bomb Iran’s power plants if Hormuz were not fully reopened within 48 hours. The president then pivoted away from that deadline, saying he would allow five days for talks.

Iran has said foreign ships are allowed to pass through the Strait of Hormuz as long as they aren’t supporting acts of aggression against the country and follow regulations put in place by Tehran. The comments came in a letter circulated to members of the International Maritime Organization on Tuesday.

In a sign of the shock triggered by the fighting, Chevron Corp. warned that California is careening toward an energy crisis, and that the company may quit refining in the state unless officials rolled back regulations. The state is particularly exposed as it imports about 20% of refined fuels from Asia and diesel prices are at a record above $7 a gallon.

In Australia, hundreds of service stations have reported fuel shortfalls. At least 600 retail sites have run out of at least one type of fuel, Energy Minister Chris Bowen told parliament on Tuesday, with shortages concentrated in the two most populous states, New South Wales and Victoria.

--With assistance from Charles Gorrivan, Jake Lloyd-Smith and Alex Longley.