Oil markets moved higher on Thursday, regaining some of the steep losses from the previous session as investors evaluated whether diplomatic efforts to end the conflict in the Middle East could ultimately succeed.
Brent crude futures rose 54 cents, or 0.5%, to $101.81 a barrel by 0615 GMT. U.S. West Texas Intermediate crude gained 45 cents, also up 0.5%, to $95.53 a barrel.
Both oil benchmarks had plunged more than 7% on Wednesday, touching their lowest levels in two weeks amid growing optimism that the war in the Middle East may be approaching a resolution.
Conflicting comments from the U.S. and Iran create uncertainty
Oil prices clawed back some losses after U.S. President Donald Trump stated that it was “too soon” for direct in-person negotiations with Tehran. Meanwhile, a senior Iranian politician reportedly dismissed the latest American proposal as closer to a wish list than a practical agreement.
“While peace negotiations are likely to continue at least until next week’s U.S.-China summit, the outlook beyond that remains uncertain,” said Hiroyuki Kikukawa, chief strategist at Nissan Securities Investment, part of Nissan Securities.
Trump is scheduled to meet Chinese President Xi Jinping next week.
“The main scenario is that oil prices will remain elevated,” Kikukawa said.
Tehran reviews U.S. proposal as mediation efforts continue
Iran said on Wednesday that it was studying a U.S. peace proposal which sources said would formally end the conflict while leaving unresolved Washington’s demands for Iran to suspend its nuclear programme and reopen the Strait of Hormuz.
A spokesperson for Iran’s foreign ministry, quoted by ISNA, said Tehran would deliver its response in due course. Trump also said he believed Iran wanted to reach an agreement.
Sources involved in mediation efforts led by Pakistan, along with another individual familiar with the discussions, said both sides were close to finalising a one-page memorandum intended to officially end the conflict.
According to Axios, U.S. officials expect Iran to respond on several major issues within the next 48 hours, with sources describing the current negotiations as the closest the two sides have come to an agreement since the war began.
Markets remain sensitive to geopolitical headlines
“From a broader perspective, oil markets have remained stuck between diplomacy and disruption for more than two months, with investors’ emotions being manipulated by headlines almost daily,” said Priyanka Sachdeva, senior market analyst at Phillip Nova.
“If a formal deal eventually materialises, oil prices could witness a free fall as geopolitical premiums rapidly evaporate from the market. However, any fresh signs of attacks on oil infrastructure or escalation in the Middle East could easily trigger another parabolic spike in crude prices.”
Supply pressures expected to continue in near term
Even if negotiators ultimately secure a peace agreement, oil supply conditions are still expected to remain tight over the coming weeks because exports from the Gulf region would require time to fully restart and reach refineries globally.
In the meantime, energy companies are expected to continue relying on stored inventories to satisfy peak summer demand.
Data released on Wednesday by the U.S. Energy Information Administration showed that American crude and fuel stockpiles declined again last week as countries sought to compensate for supply disruptions linked to the Iran conflict.
U.S. crude inventories fell by 2.3 million barrels to 457.2 million barrels during the week, compared with analyst forecasts in a Reuters poll for a draw of 3.3 million barrels.
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