US-Iran war: Oil prices declined on Thursday, extending their recent losing streak, amid hopes that talks between Iran and Qatar could lead to the reopening of the strategically important Strait of Hormuz and ease supply disruptions caused by the Middle East war.
Brent crude futures slipped 60 cents, or 0.7%, to $87.24 per barrel, marking their fourth consecutive day of losses. Meanwhile, West Texas Intermediate (WTI) crude futures dropped 56 cents, or 0.7%, to $81.67 per barrel, extending their decline to a fifth straight session.
What’s weighing on crude oil prices?
Iran and Oman are in discussions to finalise the details of an agreement aimed at managing the Strait of Hormuz, a senior Iranian source said on Wednesday. The development came after Iran’s Revolutionary Guards said the two nations had reached an understanding on sharing control of the strategic waterway, which links major Gulf oil-producing countries with global markets, as well as its revenues.
Before the US-Israel war with Iran began on February 28, the Strait of Hormuz handled oil and natural gas shipments equivalent to roughly one-fifth of global fuel consumption. However, after Iran moved to restrict traffic through the strait in response to the conflict, oil flows have fallen to around one-quarter of their pre-war levels, according to ship-tracking data.
Qatar’s prime minister is expected to travel to Iran on Thursday in an effort to revive diplomatic negotiations aimed at bringing an end to the conflict, which has continued for nearly six months.
The United States has paused its attacks on Iran for about a month and is now seeking to increase economic pressure on Tehran. This has raised investor hopes that disruptions to energy supplies from the Gulf could ease.
However, Iran and the US remain far apart on the conditions required to end the conflict. Iran has continued targeting shipping in the Gulf and the Strait of Hormuz as part of its efforts to assert control over the key waterway.
Iranian officials were quoted as saying by Reuters that the strait will remain closed unless Washington accepts Tehran’s conditions under an interim ceasefire agreement reached in June, which subsequently collapsed.
ANZ’s Hynes also highlighted the effects of the Middle East conflict and the Russia-Ukraine war on the global diesel market. Refineries in the Middle East have suffered damage during the fighting, while Ukrainian attacks on several Russian refineries have reduced exports from Russia, previously one of the world’s major diesel suppliers.
The decline in global diesel production is also becoming evident in inventory figures. The US Energy Information Administration said on Wednesday that US distillate inventories, which include diesel and heating oil, fell by 2.2 million barrels in the week ended August 21 to 103.4 million barrels.
(With inputs from Reuters)
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