Key Highlights

  • WTI settled around $92.60, up only about 20 cents, after touching session lows around $91.
  • The 10-year Treasury Yield hit its highest level since 2007, and the S&P 500 fell 59.72 points to 7,683.69.
  • Washington also appeared to be looking for ways to ease fuel costs as oil prices climbed.
  • Diplomacy and the Strait of Hormuz remain the key variables for oil in the days ahead.

Crude jumped by more than $4 a barrel early on Monday, September 28, after President Trump rejected Iran's Hormuz plan, but by the settlement most of that surge had evaporated.

A dramatic open, a modest close

Oil's Monday session looked like two different days. In the early hours, West Texas Intermediate for November delivery spiked by more than $4, as traders reacted to President Trump's rejection of Iran's seven-day plan to reopen the Strait of Hormuz. Brent traded near $108 in Asia.

By the close, the drama had faded. WTI settled around $92.60, up only about 20 cents, after touching session lows around $91.

Talk of talks

The biggest brake on the rally was the sense that diplomacy was not dead.

For oil traders, that mattered. Trump called it "unacceptable." But a rejected offer is not the same as the end of negotiations.

Supply relief ideas

Washington also appeared to be looking for ways to ease fuel costs at home. Reports said that the White House is weighing relief involving red-dyed diesel, the fuel normally reserved for off-road uses such as farm equipment. Any step that eases pressure on fuel supplies can temper price spikes, even if details have not been spelled out.

Why the risk premium lingers

Despite the fade, oil remains elevated, and the reason is the strait itself. There were 132 transits through Hormuz from September 21 to 27, compared with about 130 per day before the war. That means a week of traffic roughly equals one normal day.

Analysts warned that relief may take time. James "Rev Shark" DePorre of market reports said: "Without progress on Iran, it will be tough for oil or bonds to reverse.The two sides are not even negotiating the same thing."

The broader market felt it anyway

Even oil's modest net gain added to Inflation worries. The 10-year Treasury yield hit its highest level since 2007, and the S&P 500 fell 59.72 points to 7,683.69. E*Trade's Chris Larkin said: "The broader market hasn't been able to gain much traction because of rising yields and oil prices."

Energy was one of only three S&P 500 sectors to rise, with Exxon Mobil (NYSE:XOM) climbing to $162.53 and Chevron (NYSE:CVX) rising to $206.23. For India, which relies heavily on imported crude, oil's direction has a direct bearing on fuel prices and inflation.

US-Iran headlines will steer oil in the days ahead

Headlines on US-Iran contact will drive oil in the days ahead, and the market has shown it can swing several dollars on a single report. The November Brent contract expires around September 30, which can distort headline prices. On the economic side, Wednesday's PCE inflation data and Friday's September jobs report will show whether oil's strength is feeding into broader inflation and the Federal Reserve's thinking ahead of its October 28 meeting.