Oil prices declined for a second straight session on Wednesday, as expectations of renewed dialogue between the United States and Iran raised the possibility that supply from the Middle East could eventually return, following disruptions caused by the closure of the Strait of Hormuz.
Brent crude futures slipped 16 cents, or 0.2%, to $94.63 a barrel at 06:35 GMT, after dropping 4.6% in the previous session. U.S. West Texas Intermediate crude fell 70 cents, or 0.8%, to $90.58, extending a 7.9% loss from the prior day.
The conflict has significantly curtailed flows through the Strait of Hormuz, a critical route for crude and refined products moving from the Gulf to global markets, particularly across Asia and Europe.
U.S. President Donald Trump said negotiations with Tehran aimed at ending the conflict could restart this week, after weekend talks concluded without a breakthrough. At the same time, Washington has enforced a blockade on vessels departing Iranian ports, with military officials stating that seaborne trade to and from the country has effectively been shut down.
Even with a two-week ceasefire in place, shipping activity through the strait remains uncertain, with vessel traffic at only a fraction of the roughly 130 ships that typically transited the passage before the conflict, according to sources cited earlier this week.
“The trajectory of oil prices will likely hinge less on battlefield developments and more on diplomatic momentum. Markets are increasingly reacting to headlines around negotiations rather than troop deployments,” said Priyanka Sachdeva, senior market analyst at Phillip Nova.
“Each signal of renewed dialogue has been met with price declines, suggesting that traders are systematically unwinding the ’war premium’ embedded into crude earlier this month.”
Refiners are scrambling to secure alternative crude supplies, pushing up premiums for oil sourced from regions such as the U.S. Gulf Coast and the North Sea. A cargo of WTI Midland destined for Rotterdam traded at a record premium of $22.80 a barrel above European benchmarks on Tuesday.
A U.S. naval destroyer intercepted two tankers attempting to depart Iran on Tuesday, according to a U.S. official.
“While diplomatic headlines suggest the possibility of renewed U.S.-Iran talks and even a temporary easing of transit restrictions, the physical reality remains fragmented,” the Schork Group said in a note.
Supply concerns could intensify further after U.S. officials told Reuters that Washington will not extend a 30-day waiver on sanctions covering Iranian oil shipments at sea, which expires this week. A similar waiver on Russian oil sanctions was also allowed to lapse over the weekend.
Later in the session, markets will look to official U.S. inventory data from the Energy Information Administration, due at 10:30 a.m. ET (14:30 GMT).
U.S. crude stockpiles were expected to post a modest increase last week, while inventories of distillates and gasoline likely declined, according to a Reuters poll.
Separate data from the American Petroleum Institute showed that U.S. crude inventories rose for a third consecutive week, market sources said on Tuesday.
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