Oil Prices Extend Losses as Strait of Hormuz Talks Raise Supply Hopes

Oil prices fell by more than $1 on Thursday, extending a run of declines as investors assessed renewed diplomatic efforts that could reopen the Strait of Hormuz and ease disruptions to global energy supplies.

Brent crude futures dropped $1.07, or 1.2%, to $86.77 a barrel, putting the benchmark on course for a fourth consecutive session of losses. West Texas Intermediate crude fell $1.13, or 1.4%, to $81.10 a barrel and was heading for a fifth day of declines.

The fall in prices came as Iran and Oman worked to finalise details of an agreement concerning the Strait of Hormuz, according to a senior Iranian source. Iran’s Revolutionary Guards had earlier said the two countries had reached an understanding on managing the strategic waterway and sharing its revenues.

The Strait of Hormuz is one of the world’s most important energy routes. Before the US-Israeli war on Iran began on February 28, the waterway carried oil and liquefied natural gas shipments equivalent to around one-fifth of global consumption.

Oil flows have since fallen to roughly one-quarter of their pre-war levels after Iran moved to restrict traffic through the strait, 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 warned that concerns over shortages in the oil market remained.

Qatar’s prime minister is also expected to travel to Iran to restart diplomatic negotiations aimed at ending the conflict, which has continued for almost six months.

The United States has halted attacks on Iran for about a month while seeking to increase economic pressure on Tehran. The developments have raised hopes among traders that disruptions to energy supplies from the Gulf could ease.

However, major disagreements remain between the parties, particularly over Iran’s nuclear programme. Tehran has also attacked shipping in the Gulf and the Strait of Hormuz as it seeks to maintain control over the vital route.

Priyanka Sachdeva, head of market insights at Phillip Nova, said the nuclear dispute was unlikely to be resolved quickly and warned that uncertainty could persist.

“As long as the risk to supply remains, some degree of war premium can continue to be priced into oil,” she said.

The conflicts in the Middle East and Ukraine are also putting pressure on global diesel supplies. Damage to Middle Eastern refineries and Ukrainian strikes on Russian refineries have reduced production and exports.

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 to August 21, reaching 103.4 million barrels.

Hynes said the stockpile was the lowest recorded for this time of year, highlighting continued tightness in the diesel market despite the recent decline in crude prices.