Oil prices fell 6% on Wednesday after US President Donald Trump said negotiations with Iran were in the final stages, though investors remain cautious about the outcome of peace talks amid ongoing supply disruptions in the Middle East.
Brent crude futures dropped $6.64, or 5.97%, to $104.64 a barrel by 1.45pm ET, while US West Texas Intermediate futures fell $6.49, or 6.23%, to $97.66. Trump warned of further attacks unless Iran agrees to a deal, and Iran's foreign ministry spokesperson, Esmaeil Baghaei, stated Iran was ready to develop protocols for safe shipping traffic in cooperation with other coastal states, without providing further details.
Despite signs of progress, market participants and analysts remain wary about the outcome of negotiations and global supply tightness that is likely to persist even if a deal is reached. John Kilduff, partner at Again Capital, said: “You’ve got to take all these pronouncements with a grain of salt these days, but the market was also quick to reward it and price in the hope of a resolution.”
Analysts at Citi expect Brent crude to rise to $120 a barrel in the near term, stating that oil markets are underpricing the risk of prolonged supply disruption. Wood Mackenzie estimated it could approach $200 if the Strait of Hormuz remains largely shut until the end of the year. PVM analysts said global oil stocks could reach critically low levels, noting that market players are “comparatively nonchalant (or complacent) about what the conflict might bring.”
The premium on Brent contracts for delivery next month over those for delivery in six months—an indicator of supply tightness—is about $20 a barrel, well below last month's highs above $35. Meanwhile, Russian Deputy Prime Minister Alexander Novak said some countries are lifting sanctions on Russian oil because global markets cannot function without it, according to state news agency Tass.
Three supertankers carrying 6 million barrels of Middle East crude crossed the Strait of Hormuz on Wednesday, bound for Asian markets, after waiting in the Gulf for more than two months. The number of vessels crossing the strait remains well below the pre-war daily average of around 130.
