NEW YORK – Oil extended declines on optimism a deal can be reached that would reopen the Strait of Hormuz, freeing up supply trapped in the Persian Gulf.
Brent dropped below US$79 a barrel, while West Texas Intermediate (WTI) declined toward US$75 after losing more than 10 per cent in the prior two sessions. Qatar said on Aug 4 that an interim proposal had been drafted and both Washington and Tehran signalled progress in talks to reopen the waterway.
Oil prices have slumped over the past two weeks as United States President Donald Trump said he postponed new strikes on Iran to give talks more time. Even if a short-term deal to normalise commercial shipping in the strait is reached, it might still fail to end the war conclusively or resolve Trump’s concerns about the Islamic Republic’s nuclear programme.
“Now that passions have cooled somewhat, perhaps there is a chance a deal can be agreed to,” said Robert Yawger, director of energy futures division at Mizuho Securities USA. “I still expect a bad deal to ultimately get done, which will allow the US to declare some kind of victory, but leave a lot of loose ends, including the nuclear deal.”
The previous US-Iran ceasefire lasted less than a month before collapsing over Hormuz. That helped drive a roughly US$32 swing in Brent in July as the conflict reignited and spread to the Red Sea, before another pause in late July to allow diplomatic efforts to continue was shattered.
Trump discussed efforts to de-escalate US-Iran tensions with Qatar’s Emir Sheikh Tamim bin Hamad Al Thani in a call on Aug 4, according to the Gulf state’s government. A White House official confirmed the call without offering more details.
In a sign of potential progress, Iran is considering allowing European nations to remove mines from the strait, according to diplomats familiar with the matter. Separately, the country’s foreign ministry said discussions between Tehran and Oman had been positive and centred on safe routes in the waterway, according to state-run IRIB News.
Meanwhile, Saudi Arabia held talks with Yemen’s Houthi militants through Omani mediators as it seeks to prevent the conflict from widening, according to people familiar with the matter. The OPEC member is continuing to prepare military options should negotiations fail, they said.
Elsewhere, US crude inventories rose 2.7 million barrels last week, while stockpiles at Cushing, Oklahoma – the delivery hub for WTI – increased by 2.4 million barrels.
If confirmed by official data later on Aug 5, that would be the biggest rise in Cushing since March, and would help push levels back above the 20 million-barrel level widely considered the operational minimum. Bloomberg
