Oil prices fell Wednesday as diplomatic progress toward reopening the Strait of Hormuz outweighed renewed Russia-Ukraine tensions in a volatile session. Iran and Oman agreed on a temporary route through the strait, while a Bloomberg report on possible Russian escalation against Ukraine briefly pushed prices higher.
Oil extended its weekly decline Wednesday as diplomatic progress toward reopening the Strait of Hormuz outweighed fresh Russia-Ukraine tensions. Brent crude futures shed 0.9% to settle at $86.47 a barrel, while WTI crude futures dropped 0.6% to settle at $81.83 a barrel.
Russia-Ukraine risk resurfaces
Oil briefly turned higher Wednesday morning after Bloomberg reported Russia was preparing to escalate attacks on Ukraine, citing three people close to the Kremlin, after concluding that peace negotiations had stalled. The report said Russia was considering intensifying conventional ballistic missile attacks on Kyiv's center and infrastructure targets in other cities, and that some Russian officials believe Vladimir Putin could eventually use tactical nuclear weapons as a last resort.
The war has dragged on for more than four years since Moscow's February 2022 invasion, and Russia currently occupies roughly 20% of Ukrainian territory. Kyiv has responded with long-range drone strikes that have damaged up to 40% of Russia's refining capacity and logistics hubs such as those run by Wildberries.
Iran and Oman agree on a temporary Hormuz route
Prices had slumped over 5% on Tuesday after Russian state agency RIA Novosti reported, citing Pakistani and Iranian sources, that the U.S. and Iran were close to a fresh ceasefire including free navigation through the Strait of Hormuz. Investing.com could not immediately verify the RIA report.
Al Jazeera separately reported that Iran and Oman agreed on a new temporary route through the strait after talks in Tehran, though a top Iranian official stressed the strait will not fully reopen until the U.S. follows through on its June framework deal commitments. Tanker traffic through the crude oil chokepoint remains thin: preliminary Kpler data cited by CNBC showed just five commodity ships transited the strait on Tuesday, below the 10-day average of 15, compared with the roughly one-fifth of world oil and liquefied natural gas flows that passed through before the war.
Analysts see a lasting risk premium
Analysts at Vital Knowledge said oil prices will likely never return to where they stood before the conflict. According to Vital Knowledge: "A geopolitical risk factor will be permanently embedded in the price".
Analysts at ING said the Iran-Oman agreement does not mean oil flows through the chokepoint will normalize, adding that Washington would need to lift its blockade on Iranian ports and ease sanctions on Iran first. The talks came a day after the U.S. imposed stricter economic sanctions against Tehran, signaling a preference for economic pressure over military strikes.
Source: Commodities & Futures News
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