Oil prices experienced a significant decline of 6% on Wednesday, following remarks by former US President Donald Trump indicating that negotiations with Iran are approaching their final stages. However, market participants remain cautious regarding the outcome of peace talks, as disruptions to Middle Eastern supply continue to pose risks.
Market Reaction
Brent crude futures dropped by $6.64, or 5.97%, settling at $104.64 per barrel by 1:45 PM ET. Meanwhile, US West Texas Intermediate (WTI) futures fell $6.49, or 6.23%, to $97.66 per barrel. The decline was triggered by Trump's statement that talks with Iran are in the final stages, though he warned of further attacks unless Iran agrees to a deal.
Iranian Response
Iranian Foreign Ministry spokesperson Esmaeil Baghaei stated that Iran is prepared to develop protocols for safe shipping traffic in cooperation with other coastal states, but did not provide further details. This has left some ambiguity in the market regarding the actual progress of negotiations.
Analyst Perspectives
Despite the apparent progress, several analysts and market participants remain skeptical about the outcome of the talks and the persistent global supply tightness. John Kilduff, partner at Again Capital, commented, "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 predicted on Tuesday that Brent crude could rise to $120 per barrel in the near term, stating that oil markets are underpricing the risk of prolonged supply disruption. Wood Mackenzie estimated that prices could approach $200 per barrel if the Strait of Hormuz remains largely shut until the end of the year.
Supply Concerns
PVM analysts warned that global oil stocks could reach critically low levels. "Yet, as observed lately, market players are comparatively nonchalant (or complacent) about what the conflict might bring," PVM noted. The premium on Brent contracts for delivery next month over six-month contracts—an indicator of current supply tightness—stands at about $20 per barrel, well below last month's highs above $35.
Russian Oil and Tanker Movements
Russian Deputy Prime Minister Alexander Novak stated on Wednesday that some countries are lifting sanctions on Russian oil because global markets cannot function without it, as reported by state news agency Tass. Meanwhile, three supertankers carrying oil bound for Asian markets were crossing the Strait of Hormuz on Wednesday, after waiting in the Gulf for over two months with 6 million barrels of Middle East crude onboard. The number of vessels crossing the strait remains significantly below the pre-war daily average of approximately 130 ships.
