Oil eases from $110 after Trump waives new Russia sanctions

Iran restated its terms over the weekend. At an OIC meeting in Baghdad on 18 October, Foreign Minister Abbas Araghchi said Iran would reopen the Strait of Hormuz on day six and start formal negotiations on day seven. His conditions: the US lifts its naval blockade, removes oil sanctions and ends hostilities on all fronts, including Lebanon. He said Tehran was still reviewing US comments and accused Washington of a lack of sincerity.

Washington’s terms are far apart. Vice President Vance said on Saturday that Iran must make a meaningful cut to its enrichment capacity. On Sunday Trump warned on Truth Social that the US could soon finish its campaign against Iran unless Tehran changes course. Trump rejected an earlier version of the offer, to reopen the strait within seven days, in late September, and no ceasefire is in place.

The shipping lane itself is no safer. Late on Sunday, Iran’s Revolutionary Guards navy said an oil tanker had hit a mine south of the strait and caught fire. It claimed the tanker was using a route Iran calls unauthorised, with its tracking switched off; the claim has not been independently verified.

By 15 October, 26 vessels had been struck in October. Kpler estimated crude flows through Hormuz at 8.5m barrels a day in the week to 12 October, nearly 40% below pre-war levels. That is the physical squeeze: oil that cannot reach buyers.

Two supply stories are pulling against each other. The waiver eases the threat to Russian oil and diesel; the attacks in the Gulf are a physical squeeze happening now. Monday’s move shows which one traders trust more.

Brent gave back about $2, half of Friday’s $3.94 gain. A waiver removes a threat rather than adding barrels, and this one may not last. Tim Waterer of KCM Trade argues that until the waiver’s details and duration are clearer, the market is unlikely to fully price a sustained rise in Russian supply.

Washington is leaning against high fuel prices. Bloomberg ties the order to Trump’s push to lower diesel prices before the 3 November midterms. It is the second Russia waiver in about two weeks, after an earlier one let Russian diesel be sold. That suggests the White House is prepared to ease pressure on Moscow to bring fuel prices down, which matters for how far rallies can run.

For rates, oil is the swing factor. Energy was a big driver of September’s US inflation. Producer prices rose 1.3% in the month, with energy up 10.8%. Consumer prices were 3.7% higher than a year earlier.

Markets price a Fed hike by December at about 90%. On Monday, lower oil helped the 10-year Treasury yield ease to 5.085%, according to Reuters. Brent holding near $110 keeps the inflation pressure on; a sustained fall would ease it.

The waiver’s clock. The order has no end date, but Secretary of State Marco Rubio said on 18 October that Trump will take up to 60 days to weigh its impact on the global and US economies, which would run to about mid-December. Trump says no final decision has been made. Signs that the waiver will stick would push more of the Russia premium out of the price; a reversal would put it back.

Iran’s six-day timetable. If the US accepted Iran’s terms, the strait would reopen on day six: the biggest single downside risk for oil. For now the gap between the two sides is wide, and rhetoric hardened over the weekend.

Mines and flows. Further attacks, and flow estimates from trackers such as Kpler and TankerTrackers, will show whether the physical squeeze is getting worse. For rates traders, the Fed decides on 28 October and September PCE inflation inflation lands on 29 October. The December meeting, on 9 December, comes before the 60-day window would close.