Oil Falls as US Weighs Easing Shadow Fleet Sanctions

Oil prices fell more than 1 percent on Thursday, giving back the prior session's gains, as traders weighed two forces pulling the other way: attacks on shipping near the Strait of Hormuz, and a US push to cut the cost of moving oil by easing sanctions on shadow fleet tankers.

Brent crude futures fell 1.6 percent to 104.42 dollars a barrel by 0337 GMT on Thursday, Reuters reported. US West Texas Intermediate fell 1 percent to 94.11 dollars. In later Asian trade, December Brent was near 104.16 dollars, down 1.79 percent, according to The Hindu BusinessLine.

The sanctions idea

The Trump administration is considering easing sanctions on shadow fleet vessels that have carried oil and products from Russia, Iran and Venezuela, a US official said on Wednesday. The talks centre on letting legal oil flow on ships that were sanctioned for earlier cargoes, in an effort to cut freight rates that have hit record highs during the Iran war.

Energy Secretary Chris Wright made the same point in a video address to the World Petroleum Congress in Riyadh this week, according to an Energy Aspects account of his remarks reported by Reuters. He said the administration was talking about easing the vessel sanctions because high freight costs have cut into demand for US crude.

The demand warning

The International Energy Agency added to the pressure in its October Oil Market Report. The agency forecast world oil demand down 2.5 million barrels a day year on year in the fourth quarter, and down 2.6 million barrels a day on average in 2026. Diesel accounts for a quarter of the drop, as restricted product supply, high fuel prices and a weaker outlook bite.

The IEA said a partial recovery of 2 million barrels a day would still leave 2027 world oil use 620,000 barrels a day below 2025 levels. At the same time, supply rose in September: world output climbed 2.5 million barrels a day to 102.3 million, led by Gulf producers. Russian crude output rose 65,000 barrels a day to 8.43 million, though that stays 870,000 barrels a day below a year earlier. Gulf exports rose 4.4 million barrels a day in September to about 75 percent of prewar levels.

Why prices did not fall further

The floor under the market is the shooting. WTI hit a three week high in the prior session after Houthi attacks on Saudi Aramco sites and Iranian threats of new tactics against Hormuz shipping. A container ship and a dry bulk carrier sank near the strait in the past 24 hours after projectile hits, maritime officials said on Wednesday. Inventories are also thin: the IEA said on land stocks have fallen near their lowest in at least a decade, and Brent is still up more than 70 percent this year.

What happens next

No sanctions change has been announced. If Washington moves, more tanker capacity could enter the legal market fast, and freight rates would be the first thing to fall. If it does not, Thursday's dip rests on a demand forecast, and one more Hormuz incident can erase it in an hour.