Oil prices fall 2% as Iran-Oman talks raise hopes for Strait of Hormuz reopening

Global oil prices fell nearly 2% on Wednesday, extending the sharp losses recorded in the previous session, as renewed diplomatic efforts between Iran and Oman raised hopes that shipping through the

TOKYO: Global oil prices fell nearly 2% on Wednesday, extending the sharp losses recorded in the previous session, as renewed diplomatic efforts between Iran and Oman raised hopes that shipping through the strategically important Strait of Hormuz could gradually resume.

Brent crude futures declined $1.78, or 2%, to $86.80 a barrel by 0027 GMT. US West Texas Intermediate (WTI) crude futures also moved lower, shedding $1.49, or 1.8%, to $80.87 a barrel.

The latest decline followed a much steeper sell-off on Tuesday, when both major oil benchmarks dropped by more than 3% as traders reacted to signs that tensions around the vital shipping route could ease.

Market participants have been closely watching diplomatic developments involving Iran and Oman because any improvement in navigation through the Strait of Hormuz could reduce concerns over disruptions to global energy supplies.

“The market continues to react to developments surrounding navigation through the Strait of Hormuz, and hopes for progress in talks between Iran and Oman have triggered selling,” said Mitsuru Muraishi, an analyst at Fujitomi Securities.

He added that continuing uncertainty was encouraging some investors to buy oil at lower prices, which could prevent a deeper decline and keep crude markets within a relatively narrow trading range in the near term.

Iran, Oman Discuss Temporary Shipping Corridor

Iran said it had resumed discussions with neighbouring Oman over arrangements for managing maritime traffic through the Strait of Hormuz as Tehran faces increasing economic pressure from the United States.

The two countries have held intermittent discussions for several weeks regarding the movement of vessels through the waterway. Before the conflict began in February, the strait was a major global energy corridor, carrying roughly one-fifth of worldwide oil and liquefied natural gas shipments.

Iran and Oman said on Tuesday that their discussions included plans for a “joint temporary navigational corridor” through the strategic passage. The countries also agreed to work on clearing mines from the waterway, according to statements issued after the talks.

Any meaningful improvement in the security situation could ease fears among oil traders about prolonged disruptions to crude and LNG supplies.

US Reduces Diplomatic Risk Assessment

Meanwhile, the United States has started returning some personnel to diplomatic missions in the Middle East that had previously been evacuated or scaled back because of heightened tensions with Iran, according to people familiar with the situation.

The move could indicate that Washington believes the immediate risk of a further escalation in the conflict has declined. However, some US diplomatic facilities are expected to continue operating with reduced staffing and limited capacity initially.

The developments come after Washington expanded sanctions on Monday targeting Iran’s economy. The measures are designed to increase pressure on Tehran and threaten penalties against countries and businesses that continue commercial dealings with Iran, although the US said the penalties would not be enforced immediately.

Tanker Incident Adds to Shipping Concerns

Despite signs of possible diplomatic progress, risks to commercial shipping remain.

A tanker was reportedly hit by an unidentified projectile on Tuesday and was left disabled around 9 nautical miles, or approximately 17 kilometres, northeast of Ash Shishah in Oman. The location is close to the entrance of the Strait of Hormuz.

The incident highlights the continuing security risks faced by vessels operating in and around one of the world’s most important energy corridors. Any fresh attacks or disruptions could quickly reverse the recent decline in oil prices by reviving fears of supply shortages.

US Crude Inventories Rise

Oil markets also received bearish signals from the United States, where crude inventories reportedly increased by around 4.2 million barrels during the week ended August 21, according to market sources citing data from the American Petroleum Institute (API).

The reported increase was significantly larger than the rise expected by analysts. A Reuters poll had projected an average increase of approximately 600,000 barrels.

Investors are now awaiting official inventory figures from the US Energy Information Administration (EIA), the statistical arm of the Department of Energy.

The EIA data are scheduled for release at 10:30 a.m. ET (1430 GMT) on Wednesday and will provide further clues about domestic oil demand, refinery activity and overall market conditions.