LONDON: Oil prices fell on Thursday, extending their recent decline, as investors hoped diplomatic efforts involving Iran and Qatar could help reopen the Strait of Hormuz and ease supply disruptions caused by the ongoing Middle East conflict.
Brent crude futures fell 41 cents, or 0.5%, to $87.43 a barrel, putting the benchmark on track for a fourth consecutive session of losses. US West Texas Intermediate (WTI) crude declined 37 cents, or 0.5%, to $81.86 a barrel, heading for a fifth straight day of declines.
Market sentiment was pressured by expectations that diplomatic efforts could reduce the risk to oil shipments through the Strait of Hormuz, a critical global energy route.
A senior Iranian source said Iran and Oman were working to finalise details of an agreement concerning control of the Strait. Iran’s Revolutionary Guards had earlier said the two countries had agreed on arrangements for sharing the waterway and its revenues.
Before the US-Israeli war with Iran began on February 28, the Strait of Hormuz carried oil and natural gas shipments equivalent to around one-fifth of global fuel consumption. However, oil flows have reportedly fallen to about one-quarter of pre-war levels after Iran moved to restrict access to the strategic waterway, according to ship-tracking data.
“Crude oil edged lower as the prospect of the Strait of Hormuz reopening improved amid ongoing talks,” said Daniel Hynes, Senior Commodity Strategist at ANZ. He cautioned, however, that concerns over oil shortages remained.
Qatar’s prime minister was due to travel to Iran on Thursday to revive diplomatic efforts aimed at ending the conflict, which has lasted nearly six months. The United States has also paused attacks on Iran for about a month while seeking to increase economic pressure on Tehran, raising market expectations that disruptions to Gulf energy supplies could ease.
However, significant differences remain between the parties over the conditions for ending the conflict. Iran has also continued targeting shipping in the Gulf and the Strait as it seeks to maintain control over the waterway.
Iranian officials have said the Strait would not be reopened unless the United States complies with the terms of an interim ceasefire agreement reached in June, which subsequently broke down.
Priyanka Sachdeva, Head of Market Insights at Phillip Nova, said the dispute remained centred on Iran’s nuclear programme, which was unlikely to be resolved quickly. She added that Iran’s strategic geographic position and control over the Strait of Hormuz continued to provide significant leverage, keeping the risk of prolonged uncertainty elevated.
Analysts said oil prices could therefore continue to carry a degree of geopolitical risk premium as long as threats to supply remain.
The Middle East conflict is also adding pressure to global diesel markets. Refineries in the region have suffered damage, while Ukrainian attacks on Russian refineries have reduced exports from Russia, previously one of the world’s major diesel suppliers.
The tightening diesel market is increasingly visible in inventory data. The US Energy Information Administration reported that US distillate inventories, which include diesel and heating oil, fell by 2.2 million barrels in the week ending August 21 to 103.4 million barrels.
According to ANZ’s Hynes, the stockpile represents the lowest level ever recorded for this time of year, highlighting persistent tightness in global middle-distillate markets despite the recent decline in crude oil prices.
By Reuters
