By Barani Krishnan
Investing.com – Oil prices tumbled as much as 3% on Thursday after news that President Donald Trump’s envoy Rand Paul was traveling to Tehran to try to make peace with Iran – a proposition that, if successful, could pave the way for the Islamic Republic’s oil to re-enter the global market and neuter Saudi-Russian output cuts.
U.S. West Texas Intermediate crude was down $1.56, or 2.8%, at $55.22 per barrel by 1:00 PM ET (17:00 GMT).
London-traded Brent, the benchmark for oil outside of the U.S., slid $1.77, or 2.8%, to $61.89.
WTI is off 8.3% this week; Brent is down 7.2%.
Paul, a junior senator from Kentucky, has Trump’s blessing to meet with Foreign Minister Javad Zarif to try to set up talks for a nuclear accord and resolve a year of hostilities that saw Washington pile numerous sanctions against Iran’s oil and its leaders and Tehran reciprocate by most famously blowing up a U.S. surveillance drone in June. Iran has also been involved in various tense incidents in the Strait of Hormuz where most Middle East oil tankers ply, the latest being its seizure of a UAE oil tanker.
Bloomberg reported that, according to two senior administration officials, Trump doubts Paul will succeed in the Tehran mission, but the president sees no harm in letting him try.
“All Trump is saying is give peace a chance, or maybe Senator Rand Paul a chance,” said Phil Flynn, senior market analyst for energy at the Price Futures Group brokerage in Chicago. “Oil traders know that this can be a game changer for oil as the potential lifting of sanctions on Iranian oil could tip the balance of the market from being undersupplied to being oversupplied.”
“We know from past experience that when there are expectations of Iranian oil coming back to the market, it is very bearish.”
Oil prices were also weighed down by weakness in U.S. equities markets and expectations that crude output would rise in the Gulf of Mexico following last week's hurricane in the region.
Energy stocks fell in response to the oil-price drop. Halliburton (NYSE:HAL) was off 1.9%. Apache (NYSE:APA) fell 4.5%. Exxon Mobil (NYSE:XOM) slid 1.4%, and Chevron (NYSE:CVX) dipped 0.2%.
US offshore oil and gas production has continued to return to service since Hurricane Barry passed through the Gulf Coast last week, triggering platform evacuations and output cuts. Royal Dutch Shell (LON:RDSa), a top producer in the region, said Wednesday it had resumed about 80% of its average daily production there. Shell shares in New York were off 0.7%.
"You have people that were trying to ride the whole storm and a 9 million(-barrel) draw (in US crude inventories) that went with it last week," said Bob Yawger, director of energy at Mizuho in New York, Reuters reported. "This week the situation has totally changed and everyone is trying to get out of the market."