(Investing) – Oil prices fell on Wednesday, extending declines from the prior session, as media reports pointed to progress in diplomatic efforts to halt hostilities in the Middle East and reopen the Strait of Hormuz.
Brent crude futures, the global oil benchmark, had fallen 1.6% to $87.22 a barrel by 09:43 ET (13:43 GMT), while U.S. West Texas Intermediate crude futures had dropped 1.3% to $81.31 a barrel.
Oil prices slumped over 5% on Tuesday after Russian media reported that the U.S. and Iran were close to a fresh ceasefire deal. Russian state-owned agency RIA Novosti reported the deal, citing Pakistani and Iranian sources.
The reported arrangement includes free navigation through the Strait of Hormuz and is expected to be announced in the coming days. Investing.com could not immediately verify the RIA report.
Pakistani officials have said this week that they had made progress in mediation talks with Iran, and had discussed restoring an interim ceasefire deal between Washington and Tehran. Pakistan has been a major regional mediator in the ongoing U.S.-Iran war, and helped broker a now-expired framework ceasefire deal signed in June.
Iran, Oman agree to temporary Hormuz route – report
Meanwhile, a top Iranian official has said Iran and Oman have agreed on a new temporary route through the strait after diplomats held talks in Tehran, Al Jazeera has reported. But the official stressed that the strait will not reopen completely until the U.S. follows its commitments made in the June framework deal.
A potential resumption of commercial traffic through the Strait of Hormuz weighed on crude. Yet with the prospect of a return to fighting always “just around the corner,” oil prices will likely never return back to where it stood prior to the conflict, analysts at Vital Knowledge said.
“[A] geopolitical risk factor will be permanently embedded in the price,” they said.
Analysts at ING also warned that an agreement between Iran and Oman “does not mean we will see normalization in oil flows through the key chokepoint,” adding that the U.S. would need to “lift its blockade on Iranian ports and ease sanctions on Iran before we see any move towards normalization.”
Tanker traffic through the strait has slowed to a trickle, as shipping groups choose not to take the risk of attacks on vessels attempt to traverse the conduit. According to preliminary data from Kpler cited by CNBC, a mere five commodity ships transited the strait on Tuesday, below the 10-day moving average of 15.
Prior to the start of the war in late February, roughly a fifth of the world’s oil and liquefied natural gas flowed through the channel.
The Iran-Oman talks also come just a day after the U.S. imposed stricter economic sanctions against Tehran, with Washington signaling a preference for economic pressure over military strikes against the country.
(Ambar Warrick contributed reporting)
