Oil prices extended their retreat on Thursday, recording a fourth consecutive session of declines as investors became more optimistic that diplomatic efforts in the Middle East could eventually restore disrupted crude supply routes.
By 04:54 ET, benchmark Brent crude futures were down 0.5% at $87.37 a barrel, while US West Texas Intermediate futures also fell 0.5% to $81.79 a barrel.
Both contracts have declined more than 6% over the past week. Expectations of progress towards a diplomatic solution have increasingly outweighed persistent tensions between the US and Iran, raising hopes that regional energy supplies could gradually normalise.
The US tightened economic sanctions against Iran earlier this week and warned other countries against conducting trade with Tehran. However, subsequent reports have suggested that relations between Washington and Tehran could be moving towards a less confrontational phase.
Russian state media reported that the US and Iran had reached a new ceasefire agreement that could be announced in the coming days.
Strait of Hormuz remains central to supply outlook
Attention is particularly focused on the Strait of Hormuz, where Iran and Oman are reportedly moving closer to an agreement covering commercial shipping routes.
Iran has cautioned that any agreement would not necessarily result in an immediate reopening of the crossing. Even so, signs of diplomatic progress have strengthened expectations that maritime traffic could eventually begin returning towards normal levels.
Pakistan, which has played an important role as a regional mediator, has also indicated that progress is being made in peace discussions involving Iran.
Physical supply conditions remain constrained for now. Shipping data showed that traffic through Hormuz continues to run at only a fraction of the levels recorded before the war.
The strategic waterway handled roughly 20% of global crude supplies before the conflict, making any sustained recovery in shipping activity potentially significant for international oil markets.
A reopening could allow greater volumes of Middle Eastern crude to reach global buyers, easing some of the supply pressures that have influenced prices throughout the conflict.
Markets keep watch on Russia and Ukraine
Geopolitical developments elsewhere also remain in focus, with reports suggesting Russia could increase its attacks against Ukraine after concluding that negotiations have made limited progress.
Moscow is reportedly considering a greater number of ballistic missile strikes against Kyiv and other infrastructure targets, keeping another potential source of commodity-market uncertainty on investors’ radar.
“The Russia-Ukraine conflict has been completely sidelined by markets for a while, and there was little to suggest hopes of a resolution were building up. The commodity markets continue to look only at the Middle East situation,” analysts at ING said in a note.
For oil markets, developments in the Middle East remain the dominant near-term driver. Further diplomatic progress and a recovery in shipping through Hormuz could improve the global supply picture, giving traders a clearer view of how quickly disrupted crude flows might return.
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