Oil extends losses on hopes for Middle East talks to ease supply woes
“Oil prices fell on Thursday, extending a streak of losses, on expectations that talks between Iran and Qatar might open the Strait of Hormuz and reduce supply disruptions from the war in the Middle E…”
Brent crude futures were down 41 cents, or 0.5%, to $87.43 a barrel, in line for a fourth day of declines. West Texas Intermediate crude futures fell 37 cents, or 0.5%, to $81.86, in line for a fifth day of losses.
Iran and Oman are working on finalising details of an agreement to control the Strait of Hormuz, a senior Iranian source said on Wednesday, after Iran's Revolutionary Guards said the two countries had agreed how to share the waterway that connects major Gulf oil producers to markets and its revenues.
The strait carried oil and natural gas shipments equal to about one-fifth of global consumption of the fuels before the US-Israeli war on Iran started on February 28. Since Iran worked to shut the waterway in response, oil flows have dropped to about one-quarter of their pre-war level, -tracking data.
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"Crude oil edged lower as the prospect of the Strait of Hormuz reopening improved amid ongoing talks," said Daniel Hynes, senior commodity strategist at ANZ, in a note on Thursday, though he cautioned "concerns over shortages in the oil market persist.
"Qatar's prime minister will head to Iran on Thursday to relaunch diplomatic talks to end the conflict, which is nearly six months old. Read:Oil prices fall $2 on Iran-Oman talks to reopen Strait of Hormuz.
The US has halted its attacks on Iran for about a month and is seeking to impose greater economic pressure on Iran, which has raised investors' expectations for an easing of the Gulf supply disruptions.
Still, the countries are far apart on their demands to end the fighting and Iran has struck shipping in the Gulf and strait to impose its control on the waterway. Iranian officials have also said the strait would not open unless the US met under an interim ceasefire agreement that was struck in June and later unraveled.
"At the heart of the dispute remains Iran's nuclear programme and that is unlikely to be resolved quickly... Iran also understands the importance of its geographical position and the leverage that the Strait of Hormuz provides, so the risk of prolonged uncertainty remains," said Priyanka Sachdeva, head of market insights at Phillip Nova.
"As long as the risk to supply remains, some degree of war premium can continue to be priced into oil. "ANZ's Hynes also pointed to the impact the Middle East war and the Russia-Ukraine war are having on the diesel market.
Middle East refineries have been damaged in that conflict and Ukraine has hit several Russian refineries, cutting exports from what was a major global diesel supplier. The curtailment in worldwide diesel output is showing up in inventory data.
The US Energy Information Administration reported on Wednesday that distillate stockpiles, including diesel and heating oil, dropped by 2.2 million barrels in the week to August 21 to 103.4 million barrels. Hynes said this is the lowest distillate stockpile level ever recorded for this time of year.
Written by Fawad Khan
Aman-e-Pakistan Senior Journalist & Bureau Reporter
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