Oil retreats under $90 after Iran notes ongoing talks with US

Oil has retreated under $90 a barrel, trimming some of its recent advances following news of diplomatic contacts between the US and Iran.

Iran indicated that talks with the United States through intermediaries continue, even after US military actions on the country.

AFP reports that foreign ministry spokesman Esmaeil Baghaei stated at a Tehran press conference:

We have been informed by mediators, we have received messages - without going into details - but the main point is that the diplomatic apparatus has been active in recent days and ideas have been conveyed to us by certain mediators.

Brent crude, the global oil benchmark, has trimmed some of its earlier advances yet remains 1 percent higher at $89.07 a barrel.

The Stoxx Europe 600, which follows leading continental firms, is now slightly higher by 0.1 percent, although the UK FTSE 100 remains lower by 0.3 percent.

Key events

25m agoOil retreats under $90 after Iran notes ongoing talks with US
1h agoEuropean equity markets decline amid heightened Middle East strains
1h agoSegro turns down improved £13.5bn takeover offer
2h agoDiesel supply constraints may affect Europe, Morgan Stanley cautions
2h agoIntroduction: Oil advances past $90 as Middle East conflict intensifies

Europe is especially exposed to constraints on refined fuel availability, according to PVM Oil Associates, an energy and commodities broker.

John Evans, an analyst at the firm, said:

The European continent is at present particularly vulnerable to the lack of finished fuels as demand has severely increased due to the ongoing, unforgiving heatwave reflected in the demand on the electricity grid. The Gasoil/Brent crack rallied nearly $10/barrel last week and is up nearly $25/barrel since the world thought Hormuz was cured in the middle of June.
One could argue that the recent scrutiny received by AI and technology companies, and stock market falls, are due to the increased awareness of both overstretched valuations and investment, and now, in AI buildouts, overcapacity.
Yet it cannot be denied on how this current flare-up in and around the pinch of Hormuz, and its inflationary influence, causes nervousness for investors as they consider their portfolio exposure to companies which might feel a heavy load if indeed the notions of higher for longer interest rates play out.
As for oil prices, with Brent knocking on the door of $90/barrel and only one errant bombing or incident away from pushing on to $100/barrel once again, and supply of gasoline and diesel getting ever shorter, time is running out for the US President to assuage the current anxiety building within the oil fraternity.

European equity markets decline amid heightened Middle East strains

It is an unsteady opening for European equity markets this morning: the Euro Stoxx 600, which follows leading continental firms, is lower by 0.2 percent.

The UK blue-chip FTSE 100 index is lower by 0.6 percent, led by declines in the real estate sector, which is down 1.2 percent. Energy firms BP and Shell are however advancing on the higher oil price, with shares up 1.5 percent and 0.7 percent respectively.

Over in the bond market, oil prices are supporting a rise in gilt yields. The 10-year yield is up by about 4 basis points. Meanwhile the pound is up slightly against the dollar by 0.05 percent to $1.34.

Segro turns down improved £13.5bn takeover offer

The UK warehouse landlord Segro has turned down the latest takeover offer from its US rival Prologis, which valued the FTSE 100 company at £13.5bn.

Segro has repeatedly turned down Prologis takeover attempts, including a £12.6bn all-share proposal in June, saying it was opportunistically timed and significantly short of fair value.

Today Prologis said Segro board had unanimously turned down its third proposal made on 16 July, which included a partial cash alternative of up to £2.7bn and 0.0890 new Prologis share for each Segro share.

It represented an almost 10 percent premium to Segro net asset value, and a 34 percent premium to its share price before Prologis revealed its takeover interest, according to the US company statement this morning. Segro turned down the offer a day after it was made.

The takeover attempt by Prologis - which called on investors today to back the deal - is the latest in a series of endeavours by overseas buyers targeting FTSE 100 companies.

Segro is best known for building cavernous sheds, with a multi-billion pound portfolio that includes warehouses, data centres and industrial property, mostly in the south-east of England.

Shares in Segro are down 1.4 percent this morning, but are up by about 19 percent since the first Prologis offer was made in June.

Diesel supply constraints may affect Europe, Morgan Stanley cautions

Europe faces a constraint on its diesel supply this year, according to analysts at the bank Morgan Stanley, with stockpiles expected to decline over the coming months.

Analysts including Martijn Rats wrote in a note yesterday:

The picture is genuinely tight. Our supply/demand modeling points toward European diesel inventories falling to multi-year lows toward year-end.
The real bottleneck in the oil system right now is refining, more so than crude. The epicenter of all this is the diesel market, and Europe in particular.

It comes as global energy markets grapple with the impact of renewed conflict in the Middle East.

Morgan Stanley now expects that European stockpiles will fall steadily from August, reaching a low of about 299m barrels in November. That would be the lowest level for that time of year since at least 2015, according to their analysis, which was first reported by Bloomberg.

Jim Reid of Deutsche Bank says the rapid rise in the oil price and fresh waves of strikes underscores how quickly the situation is deteriorating.

Three US service members were killed in separate incidents in Jordan and Iraq, while US strikes hit targets including Qeshm Island and multiple locations in southern Iran. At the same time, Iran broadened its retaliation beyond military sites, targeting critical infrastructure across the Gulf, including power and desalination facilities in Kuwait, as well as launching drone and missile attacks towards US bases and regional allies. And prospects for any diplomatic breakthrough remained dim, with Iran Foreign Minister Araghchi suggesting that some nuclear issues may remain unresolvable.
Tensions also escalated further in the strait of Hormuz, with Iran signalling a far more assertive stance over shipping flows and claiming to have intercepted vessels attempting to transit the waterway.

Introduction: Oil advances past $90 as Middle East conflict intensifies

Oil prices have reached their highest level in more than a month as the US carries out its ninth consecutive night of strikes against Iran.

Brent crude, the global oil benchmark, is now up by 2.7 percent to $90.49 a barrel, shortly after hitting as high as $91.41 - its highest level since June.

The jump in oil prices comes as the US carries out another fresh wave of attacks against Iran, after a fragile ceasefire agreement signed a month ago unravels and deepens a struggle for control over the strait of Hormuz.

The US announced the death of a third American service member over the weekend, after two people were killed in an Iranian attack on a Jordanian base on Friday, with another missing in action.

US president Donald Trump said we hit them very hard again tonight as he returned to Washington after the World Cup final, adding we did that in honour of the, probably three, it is probably three great patriots.

The British military has also reported that a ship caught fire in the strait of Hormuz near the coastline of Oman, though it is unclear what triggered the blaze. Iran Revolutionary Guard (IRGC) later claimed two oil tankers were blown up after attempting to transit through the southern route of the strait, but there was no independent confirmation.

It also claimed on Monday that two oil tankers had exploded and been immobilised after attempting to transit the southern route through the strait of Hormuz.

The IRGC said the strait would remain unsafe as long as what it called US aggression in the region continued, warning that this passage will not be safe for the transit of petrochemical products, nor even a single drop of oil and gas.

Elsewhere this morning, uncertainty around the Middle East war has meant Ryanair has had to cut fares during the peak summer travel season.

The budget airline has said this morning that its first quarter average fares were 6 percent lower than last year.

Chief executive Michael O Leary said in a statement:

The Middle East conflict led to consumer hesitancy, concerns about EU jet-fuel shortages, economic uncertainty and later bookings.
Despite a recent, slight, uptick in volumes, and less price stimulation, Q2 pricing is trending modestly down (y-o-y) and the final H1 fare outcome is heavily dependent on the strength of close-in bookings in Aug. and Sept.

The company said its first quarter profit after tax fell 34 percent to €538m (£457m), down from €820m at the same point last year and compared with a forecast of €579m in a company poll of analysts.

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