Oil prices fell for a second straight session on Wednesday as investors welcomed signs of progress in talks between Iran and Oman over the Strait of Hormuz, raising hopes that one of the world’s most important oil shipping routes could soon operate more smoothly.
Brent crude dropped $1.78, or 2 per cent, to $86.80 a barrel by 0027 GMT. US West Texas Intermediate crude slipped $1.49, or 1.8 per cent, to $80.87 a barrel. The declines came after both benchmarks lost more than 3 per cent on Tuesday.
Market sentiment improved after Iran said it had resumed discussions with Oman on managing navigation through the Strait of Hormuz. The narrow waterway is a vital route for global energy supplies and handled around one fifth of the world’s oil and liquefied natural gas shipments before conflict erupted in February.
Mitsuru Muraishi, an analyst at Fujitomi Securities, said traders were reacting to hopes that progress in the talks could ease concerns over shipping through the strait. However, he noted that uncertainty remains high, encouraging some investors to buy at lower prices and keeping the market within a limited trading range.
Iran and Oman said on Tuesday they had discussed creating a temporary joint navigation corridor and agreed to remove mines from the area, a move seen as an important step towards restoring safer passage.
Adding to the improved mood, the United States has started returning personnel to some diplomatic missions in the Middle East after earlier evacuations linked to tensions with Iran. The move suggests Washington believes the risk of a wider regional conflict has eased, although some embassies will continue operating with reduced staff.
Despite the positive developments, risks remain. On Tuesday, an oil tanker was disabled after being hit by an unidentified projectile near Oman’s Ash Shishah, close to the entrance of the Strait of Hormuz.
Meanwhile, supply data also weighed on prices. The American Petroleum Institute reported that US crude oil inventories rose by about 4.2 million barrels in the week ending August 21, far above analysts’ expectations of a 600,000 barrel increase. Investors are now awaiting official inventory figures from the US Energy Information Administration later on Wednesday for a clearer picture of demand and supply.
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