“Developments Can’t Be Ignored” As Brent Tumbles On Iran Talks, Saudi Pipeline Restart Hopes: UBS

Brent crude slipped below $99 a barrel, falling as low as $97.77 in the overnight hours, as renewed US-Iran diplomacy and prospects for restored Saudi oil exports eased supply concerns. But as Goldman Sachs energy experts warned on Tuesday, the global refining nightmare will persist through next year.

The benchmark has slipped nearly 11% since mid-month after topping out around $109.65. Reports this week of a partial restart of Saudi Arabia’s East-West pipeline and Asian buyers being slated to resume cargo loadings at Yanbu offered some relief to a tight physical market. 

Full East-West pipeline repairs could take as long as two months, according to local reports. Even limited operations would ease the immediate supply squeeze.

President Trump said US officials held “very good” talks with Iranian representatives at the United Nations General Assembly in New York on Tuesday.

Special envoy Steve Witkoff and Jared Kushner participated in the three-hour talks with their Iranian counterparts on the sidelines of UNGA.

“I feel very good right now,” Witkoff said after the meeting. He wrote on X late Tuesday that the US hopes the talks “will prove constructive and promising” and the mediators will continue their work. 

UBS energy specialist Dominic Ellis provided clients with a full view of what’s driving energy markets so far this week:

Brent is below $99/bbl, down about 3.8% from Tuesday’s high and down under 10% from the $109/bbl hit early last week, as evidence emerged of debottlenecking of Middle East oil exports and of diplomatic progress between the US and Iran.

Saudi Arabia said that flows via the East-West pipeline could partially restart in coming days, and that exports from the port of Yanbu would also restart soon. Full repairs to the pipeline could take up to 8 weeks according to press reports, but even a partial restart would alleviate some of the immediate tightness in oil markets. 

Meanwhile, Iran acknowledged that there had been discussions with the US via intermediaries on the sidelines of the UN General Assembly in New York, and said it had shared conditions for a restart of transit via the Strait of Hormuz, which it said could happen in 7 days if conditions were met. President Trump called US talks with Iranian envoys “very good”. 

Cynics will note that similar comments from the US in the recent past have not resulted in meaningful progress towards diplomatic goals, and that the US has already rejected calls for an immediate end to its blockade of Iran – one of Iran’s preconditions for an easing of restrictions on the Strait of Hormuz. 

Still, the fact that talks are taking place at all is a development which cannot be ignored, and which is likely to keep downward pressure on oil prices until there is evidence that progress has stalled. On the other hand, a breakthrough in talks could push Brent back into the $80s fairly quickly. 

The desk’s base case is that the US has a strong incentive to rely on the “carrot” rather than the “stick” in the period leading up to midterm elections in November. 

Reports on Tuesday that President Trump has made comments supportive of a US diesel export ban (despite Interior Secretary Burgum’s statement last week that a ban would not likely have the desired effect) show he is growing concerned about elevated fuel prices in the US, and a focus on diplomacy with Iran may be the easiest way to bring oil and refined product prices down in the near term. 

In the medium term, however, Iranian conditions are not likely to be acceptable to the US, and we would not be surprised at a return to the low-level conflict we’ve seen over the last month.

Crude’s retreat from triple digit territory is easing pressure at the pump, with AAA data showing the national average for regular gasoline slipping to $4.474 a gallon on Wednesday. But after a 9.3% surge this month, a modest pullback offers limited political relief for the Trump administration. Prices remain well above the politically sensitive $4 threshold, leaving the White House under pressure to turn diplomatic progress into a concrete deal.

Refer back to Goldman energy analyst Nikhil Bhandari’s Tuesday note about the prolonged refining crisis and what it means for gas and diesel prices in 2027 (read here).