Oil Climbs as Qatar Mediators Plan US-Iran Talks; Middle East Crude Exports Rebound

Oil prices advanced on Monday but pulled back from earlier peaks as expectations grew that Qatari mediators would hold separate talks with the United States and Iran in an effort to find a possible peace deal.

Brent futures were up 91 cents, or 0.9%, at $105.23 a barrel, while US West Texas Intermediate crude gained 20 cents, or 0.2%, to $92.61. Prices had earlier surged by more than $4 a barrel after US President Donald Trump rejected an Iranian proposal that would have reopened the Strait of Hormuz.

According to an official briefed on the negotiations, Qatari mediators are expected to hold separate talks with Iranian Foreign Minister Abbas Araqchi in New York and with the US side on Monday or Tuesday. The discussions are expected to focus on an amended version of a seven-day proposal Iran presented last week on the sidelines of the United Nations General Assembly.

Over the weekend, Iran maintained that only diplomacy can resolve its conflict with the US and Israel, after Trump rejected its proposal to reopen the Strait of Hormuz and end hostilities. Trump told Axios in a phone interview on Sunday that he expected US negotiators to engage in more talks this week.

Separately, Saudi Foreign Minister Prince Faisal bin Farhan arrived in Washington on Monday for talks with US Secretary of State Marco Rubio, Saudi state news reported, amid escalating hostilities between Riyadh and Yemen's Iran-backed Houthis.

Middle East crude flows recover

Crude oil exports from key Middle East producers rebounded in September to 12.8 million barrels per day, the highest level since the war began in February, according to preliminary data from Kpler. Saudi Arabia and the United Arab Emirates boosted shipments, aided by a recovery in flows through the Strait of Hormuz, which were set to reach about 7.4 million bpd this month.

Saudi Arabia diverted exports from the Red Sea port of Yanbu to its eastern Ras Tanura port following attacks that damaged its East-West pipeline. UBS analyst Giovanni Staunovo noted that despite more vessel traffic through the Strait of Hormuz, flows remain below pre-conflict levels, keeping the market undersupplied. Before the US and Israel attacked Iran in February, about a fifth of the world's oil supply — roughly 20 million bpd — passed through the Strait of Hormuz.

Saudi Aramco is considering offering discounts on its official selling prices for oil loaded off Oman to compensate buyers for record freight rates, according to five people familiar with the matter.

Diesel prices in focus

In an effort to bring down soaring gasoline and diesel prices, the White House is considering regulatory relief that would allow broader sales of red-dyed diesel, according to two people familiar with the discussions. The US Transportation Department on Monday finalized sharply lower vehicle fuel economy standards.

Washington's recent talk of a possible ban on diesel exports after prices hit record highs in recent weeks is widening the gap between US crude oil futures and the global Brent benchmark, a signal that markets expect US refiners to process less crude oil if their diesel output gets stuck at home. The premium of Brent futures over WTI was on track to close on Monday at its highest since May for the third time in four trading sessions, which could prompt energy firms to send tankers to the US to pick up more US crude for export.

Diesel prices have soared due to supply disruptions related to the wars in the Middle East and Ukraine and export bans in Russia and China. Goldman Sachs said that while Europe and especially Latin America are the key destinations for US diesel exports, a diesel tightening shock would likely quickly spread to the rest of the world. Moscow imposed a ban on diesel exports to preserve domestic supplies due to refinery disruptions caused by Ukrainian attacks on Russia's energy infrastructure. On Monday, Ukrainian President Volodymyr Zelenskiy said Ukraine's military had struck Russian oil facilities in the Krasnodar region.