SINGAPORE: Oil prices fell further on Thursday as hopes grew that renewed diplomatic efforts could lead to the reopening of the strategically important Strait of Hormuz and ease supply disruptions caused by the Middle East conflict.
Brent crude futures fell 60 cents, or 0.7%, to $87.24 a barrel by 0004 GMT, extending losses for a fourth consecutive session. US West Texas Intermediate (WTI) crude dropped 56 cents, or 0.7%, to $81.67 a barrel, marking its fifth straight session of declines.
Iran and Oman are working to finalise an agreement concerning the management of the Strait of Hormuz, a senior Iranian source said on Wednesday. Iran’s Revolutionary Guards also said the two countries had reached an understanding on how to share control of the vital waterway and its revenues.
The Strait of Hormuz is a crucial global energy route. Before the US-Israeli war on Iran began on February 28, the waterway carried oil and natural gas shipments equivalent to around one-fifth of global consumption of the fuels.
However, oil flows have since fallen to around one-quarter of their pre-war levels, according to ship-tracking data, after Iran moved to restrict access to the waterway.
“Crude oil edged lower as the prospect of the Strait of Hormuz reopening improved amid ongoing talks,” ANZ senior commodity strategist Daniel Hynes said, while warning that concerns about oil shortages remain.
Qatar to resume diplomatic efforts
Qatar’s prime minister is expected to travel to Iran on Thursday to revive diplomatic negotiations aimed at ending the conflict, which has continued for nearly six months.
The US has suspended attacks on Iran for about a month while seeking to increase economic pressure on Tehran. The developments have raised hopes among investors that disruptions to oil supplies from the Gulf could ease.
CENTCOM Says 660 Million Barrels of Oil Moved Through Strait of Hormuz Since May
However, significant differences remain between the countries over the terms for ending the conflict. Iran has also targeted shipping in the Gulf and the Strait of Hormuz in an effort to maintain control over the waterway.
Iranian officials have previously said the strait would not reopen unless the US meets its conditions under an interim ceasefire agreement reached in June that later collapsed.
Diesel supplies face additional pressure
The Middle East conflict and the Russia-Ukraine war are also putting pressure on global diesel supplies.
Several Middle Eastern refineries have been damaged, while Ukrainian attacks on Russian refineries have reduced exports from a major global diesel supplier.
The US Energy Information Administration reported that US distillate inventories, which include diesel and heating oil, fell by 2.2 million barrels during the week ending August 21 to 103.4 million barrels.
According to ANZ’s Hynes, the stockpile is the lowest ever recorded for this time of year, highlighting continued pressure on the global diesel market despite the recent decline in crude oil prices.
