Global oil benchmarks eased from the strong gains seen the previous day as market participants looked for concrete signs of progress in talks between the United States and Iran. The retreat erased some of the momentum from Tuesday, when oil jumped following renewed military action.
As of 0253 GMT, Brent crude futures were down $1.42, or 1.43%, at $98.16 a barrel. U.S. West Texas Intermediate (WTI) fell $1.66, or 1.77%, to $92.23 a barrel.
Traders had pushed prices higher on Tuesday after the U.S. military carried out fresh strikes in Iran, a development that undercut hopes that weekend optimism about a diplomatic path forward would hold. Those earlier hopes had suggested the United States and Iran might reach an understanding allowing the contested Strait of Hormuz to reopen.
Iran responded to the U.S. action by saying the United States had violated a ceasefire by striking targets near the Strait of Hormuz. The United States, for its part, described the strikes as defensive in nature. The dispute follows an April ceasefire in the three-month long conflict, when both sides had signaled that progress in talks might lead to reopening the vital waterway that channels a substantial share of global oil and gas flows.
With hostilities rising again, the negotiations face increased strain. Additional military activity has the potential to set back the dialogue that had raised hopes of a resumption of normal shipping. On Tuesday, Israel intensified bombing in Lebanon, a separate escalation that adds further pressure to regional diplomatic efforts.
Despite the tensions, reports that some liquefied natural gas (LNG) tankers have transited the Strait of Hormuz in recent days provided a countervailing signal. Market participants interpreted those passages as evidence that the waterway might reopen in the near term, which would increase available global energy supply if sustained.
For now, oil markets remain sensitive to both diplomatic developments and on-the-ground military activity, as traders weigh the prospects for restored shipping through the Strait against the reality of renewed strikes and regional escalation.
Key points
- Oil prices pulled back after a strong one-day rally as traders awaited clarity in U.S.-Iran talks; Brent at $98.16 and WTI at $92.23 as of 0253 GMT.
- Renewed U.S. strikes in Iran and Tehran's accusation of a ceasefire violation have complicated negotiations over reopening the Strait of Hormuz.
- Passage of some LNG tankers through the strait in recent days has lifted expectations that the waterway could reopen, potentially adding supply to global markets.
Risks and uncertainties
- Rising hostilities threaten to derail U.S.-Iran talks on reopening the Strait of Hormuz - a development that would affect global oil and gas flows and energy markets.
- Further military escalation, including intensified bombing in neighboring areas such as Lebanon, could strain peace efforts and increase volatility across energy and shipping sectors.