European energy stocks moved lower on Wednesday as crude prices extended their decline following renewed discussions between Iran and Oman over managing shipping through the Strait of Hormuz.
Brent crude futures dropped 2.5% to $86.38 a barrel by 07:43 GMT, while WTI crude futures fell 2.8% to around $80.08. Both benchmarks extended sharp losses from the previous trading session as investors assessed the possibility of improved maritime access through the strategically important waterway.
Iran and Oman discuss interim shipping framework
Iran and Oman are discussing an interim arrangement covering shipping through the Strait of Hormuz, including the possible establishment of a temporary navigation corridor and cooperation on removing mines.
The discussions come while negotiations between Iran and the US remain stalled and Washington continues to increase economic pressure on Tehran.
Before the conflict, approximately one-fifth of global oil and LNG shipments passed through the Strait of Hormuz. Any meaningful progress towards reopening the route could therefore ease concerns over energy supplies and place additional downward pressure on crude prices.
PVM analyst questions scale of oil selloff
PVM analyst Tamas Varga questioned whether the scale of Brent’s decline, which exceeded $6 a barrel over two days, was justified by the latest diplomatic developments.
Varga noted that a permanent restoration of flows through the Strait of Hormuz “is anything but a foregone conclusion” despite reports that Iran and Oman could reach an agreement covering mine clearance and management of shipping traffic through the chokepoint.
He argued that supply risks are likely to remain and that oil inventories could continue declining over the coming weeks, although he acknowledged that “sitting in this chair has often proven uncomfortable recently.”
The comments underline the uncertainty surrounding the oil market, with traders balancing signs of diplomatic progress against the possibility that significant disruption to energy supplies could continue.
BP, Shell and European energy majors decline
The renewed fall in crude prices weighed on major European oil and gas companies as markets opened.
BP (LSE:BP.) dropped 2.8%, while Shell (LSE:SHEL) declined 1.7%. Equinor (LSE:0A7F) fell 2.5% in Oslo and Italy’s Eni (BIT:ENI) lost 1.7%.
Elsewhere, TotalEnergies (EU:TTE) declined 1.2%, while Repsol (TG:REP) fell 1.4%.
The weakness followed a 3.1% decline in WTI on Tuesday, when expectations of diplomatic progress outweighed continuing concerns surrounding potential supply disruptions.
With uncertainty over the Strait of Hormuz still elevated, further developments in the Iran-Oman discussions are likely to remain an important driver for crude prices and European energy stocks.
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