Oil saw steep losses to close the day on Tuesday, though the API’s report late yesterday helped give markets a lift. This morning crude oil is trading at $58.33, up 71 cents after shedding almost $2/bbl yesterday.

Fuel prices also saw hefty losses yesterday, with both products off by around 4 cents. This morning diesel is trading at $1.9288, up 2.4 cents from yesterday’s close. Gasoline is trading at $1.9184, up 2.7 cents.

Yesterday Trump made clear that he is not inclined to push for regime change in Iran, while also noting that “a lot of progress” has occurred in US-Iran dialogues. Secretary of State Mike Pompeo hinted that Iran is offering to come to the table for the first time over ballistic missile tests, but an Iran representative at the UN quickly retorted that Iran’s missiles are “absolutely and under no condition negotiable.” If negotiations are restarted, it could potentially unleash Iran’s 2.5 MMbpd of oil export capacity, which would quickly overwhelm global markets and send prices crashing lower.

Some point out that the US is avoiding a direct conflict with Iran, choosing instead to allow the international community to take a more active role. The head of US Central Command said the US would not protect ships travelling through the Strait of Hormuz because the US is not reliant on the strait for oil. This announcement forces other countries to more actively step up their involvement in regional security, turning a unilateral approach to a multilateral solution.

Looking to oil fundamentals, the API’s report yesterday was mildly bearish for markets, with crude drawing but not as much as expected. Diesel’s hefty inventory build helped keep a lid on any upward action, though markets remain under the conviction that IMO 2020 will significantly increase diesel demand in the coming months. Under this viewpoint, any diesel builds will quickly be whittled down once IMO 2020 is implemented on January 1.