Oil prices fell by more than $1 on Thursday, extending their recent decline as diplomatic efforts involving Iran and Qatar raised hopes that the Strait of Hormuz could reopen and ease concerns over disruptions to global energy supplies.
Brent crude futures dropped $1.07, or 1.2 per cent, to $86.77 a barrel by 0645 GMT, putting the benchmark on track for a fourth consecutive session of losses. West Texas Intermediate crude futures also declined $1.13, or 1.4 per cent, to $81.10 a barrel, heading for a fifth straight day of declines.
The market was pressured by reports that Iran and Oman were working to finalise details of an agreement governing the Strait of Hormuz, one of the world’s most important energy shipping routes.
Iranian sources told Reuters on Wednesday that Tehran and Muscat were working on the final details of an arrangement to regulate traffic through the strategic waterway. Iran’s Revolutionary Guards also said the two countries had reached an understanding on how to share the waterway and its revenues.
Before the United States-Israeli war on Iran began on February 28, the Strait of Hormuz carried oil and liquefied natural gas shipments equivalent to about one-fifth of global consumption of the fuels.
However, oil flows have fallen to about a quarter of their pre-war levels since Iran moved to restrict access to the waterway in response to the conflict, according to ship-tracking data.
“Crude oil edged lower as the prospect of the Strait of Hormuz reopening improved amid ongoing talks,” Daniel Hynes, senior commodity strategist at ANZ, said on Thursday.
Hynes, however, warned that concerns about potential shortages in the oil market remained.
Qatar’s prime minister is expected to travel to Iran on Thursday to revive diplomatic negotiations aimed at ending the conflict, which has lasted nearly six months.
The United States has also suspended attacks on Iran for about a month while seeking to increase economic pressure on Tehran. The development has strengthened market expectations that disruptions to oil supplies from the Gulf could ease.
Despite the diplomatic efforts, major differences remain between the parties over the conditions for ending the conflict. Iran has continued to target shipping in the Gulf and the Strait of Hormuz as it seeks to assert control over the strategic waterway.
Iranian officials have also maintained that the strait will not fully reopen unless the United States agrees to conditions under an interim ceasefire reached in June, which subsequently collapsed.
