Oil prices drop on hopes of Mideast conflict resolution

NEW YORK: Oil prices fell more than 5 percent on Tuesday to a three-week low after comments by Qatari and US officials raised hopes for a diplomatic resolution to the Iran war that could improve oil flows through the Strait of Hormuz.

Brent crude futures were down USD 4.44, or 5.3 percent, to USD 79.33 a barrel by 1:17 p.m. ET (1717 GMT). US West Texas Intermediate futures dropped USD 4.52, or 5.6 percent, to USD 75.82 a barrel.

Both contracts hit their lowest prices since July 13. US Secretary of State Marco Rubio said on Tuesday there was progress in talks with Iran and Oman about moving more ships through the strait, but a final agreement was yet to be reached.

READ MORE: Oil prices drop after claims of progress in US-Iran talks

Treasury Secretary Scott Bessent had said earlier on Tuesday that a deal with Iran to reopen the strait could come as soon as Tuesday or Wednesday.

Qatar’s Foreign Ministry spokesperson Majed al-Ansari said efforts to secure a diplomatic resolution to the war were continuing. Meanwhile, the latest round of US-facilitated talks between Israel and Lebanon began on Tuesday and will continue through Thursday, a US State Department spokesperson said. The prospect of a diplomatic solution to the conflict has helped remove some of the geopolitical risk premium in oil prices after the US resumed bombing Iran last month, said Simon-Peter Massabni, head of business development at brokerage XS.com.

“If negotiations between the United States and Iran make meaningful progress, the market could continue pricing in a lower probability of supply disruptions, further reducing the geopolitical risk premium embedded in crude prices,” Massabni said.

Gulf shipping traffic little changed

Disruptions to shipping through the strait, through which a fifth of global oil and gas flowed before the war, have forced Middle Eastern nations to cut oil output sharply. The world has lost more than 2.6 billion barrels of oil since the Iran war began in February, the head of Saudi oil company Aramco said.

The oil market will remain highly sensitive to political developments, Massabni said. Oil prices gained earlier in Tuesday’s session after a senior Iranian source told Reuters that Tehran wants control over inbound shipping and visibility over outbound traffic through the strait, with the ability to intervene if necessary, as part of a plan being discussed with Oman to reopen the strategic waterway.

“Gulf exports remain under pressure, with Strait of Hormuz transits only marginally improving from extremely depressed levels. The export disruption story is intact, with Iranian attacks on vessels constraining flows,” ANZ analysts said. Shipping traffic at the key Gulf waterways of Bab el-Mandeb and the Strait of Hormuz remained unchanged at the start of the week. Goldman Sachs expects Brent crude to trade in a range of USD 80 to USD 90 per barrel until there is either confirmation of a new US-Iran agreement or a significant escalation in attacks and targets.