Oil prices edge lower as Russian diesel deal counters Middle East supply fears

Crude oil prices ticked lower on Tuesday as the prospect of fresh Russian diesel supplies and a proposed energy truce eased worries sparked by weekend attacks in the Persian Gulf.

Brent crude futures slipped 61 cents, or 0.57%, to $106.04 a barrel in early trade, having settled at $106.65 on Monday—its highest level since mid-September. US West Texas Intermediate fell 47 cents, or 0.5%, to $93.27 a barrel, retreating after a $2 jump during the previous session.

What moved the market

The pullback followed an announcement by US President Donald Trump outlining an arrangement with Moscow to direct Russian diesel into international markets. To facilitate the shipments, the US administration put a temporary hold on specific energy sanctions originally imposed to curb Russian revenues during the war in Ukraine.

Under the schedule disclosed by Washington, Russia will export fuel in three tranches:

Trump also stated that Russia and Ukraine had agreed on an energy ceasefire, damping down speculation of further attacks against refineries and pipeline infrastructure in eastern Europe. The prospect of 1.8 million tonnes of fuel arriving by year-end immediately took some steam out of middle distillate cracks, which had stayed elevated throughout autumn.

The White House initiative drew prompt pushback in Washington, where lawmakers from both parties argued that clearing Russian energy flows runs contrary to federal statutes penalising Moscow over the conflict.

Gulf security keeps floor under crude

While extra Russian barrels softened prompt pricing, traders remain cautious about severe logistics bottlenecks across the Middle East. Over the weekend, Iran-aligned Houthi forces launched an attack against Riyadh's international airport, alongside fresh reports of tanker harassment near the Strait of Hormuz.

Those incidents disrupted an uneven recovery in Gulf crude shipments that had started in September. Shipping and war-risk insurance premiums have surged to exceed one-third of total cargo value, ministers participating in the Declaration of Cooperation noted, complicating vessel movements along key export arteries.

"Fresh diesel supply from Russia and steadier Saudi flows are offering some relief, yet the market still looks more worried about the risk of further hits to ships or pipelines in the Gulf than it is reassured by extra barrels," said Tim Waterer, chief analyst at KCM Trade.

Downward shift in global consumption

Slowing macroeconomic activity is also curbing momentum on the demand side. Speaking on Monday, OPEC Secretary General Haitham Al Ghais said the organisation has lowered its forecast for global oil demand growth this year to 400,000 barrels per day, down sharply from the 1.4 million barrels per day projected at the beginning of the year.

With Brent holding above $100 a barrel, analysts at ING pointed out that Washington faces mounting domestic pressure to cool pump prices ahead of upcoming midterm elections. However, sustained relief for consumers will depend on whether Gulf transit routes can operate without regular military interference.