Oil prices moved higher on Thursday, recovering part of the steep losses recorded in the previous session as traders evaluated the likelihood of a successful peace agreement in the Middle East.
Brent crude futures rose 54 cents, or 0.5%, to $101.81 per barrel by 0615 GMT. U.S. West Texas Intermediate crude gained 45 cents, also up 0.5%, to $95.53 per barrel.
Both benchmarks had fallen more than 7% on Wednesday, touching their lowest levels in two weeks amid optimism that the conflict in the Middle East could be approaching an end.
Mixed signals from Washington and Tehran limit downside
Oil prices recovered some ground after U.S. President Donald Trump said it was “too soon” for direct face-to-face negotiations with Tehran. At the same time, a senior Iranian lawmaker reportedly described the latest U.S. proposal as more of a wish list than a realistic agreement.
“While peace negotiations are likely to continue at least until next week’s U.S.-China summit, the outlook beyond that remains uncertain,” said Hiroyuki Kikukawa, chief strategist of Nissan Securities Investment, a unit of Nissan Securities.
Trump and Chinese President Xi Jinping are expected to meet next week.
“The main scenario is that oil prices will remain elevated,” Kikukawa said.
Iran reviews U.S. proposal while negotiations continue
Iran said on Wednesday that it was examining a U.S. peace proposal which sources said would formally end the conflict while leaving unresolved Washington’s key demands that Tehran halt its nuclear programme and reopen the Strait of Hormuz.
A spokesperson for Iran’s foreign ministry, quoted by ISNA news agency, said Tehran would communicate its response in due course. Trump meanwhile stated that he believed Iran wanted an agreement.
Sources involved in Pakistani mediation efforts, along with another person familiar with the negotiations, said the two sides were close to agreeing on a one-page memorandum intended to formally end the conflict.
Axios reported that Washington expects responses from Iran on several major points within the next 48 hours, citing sources who described the current situation as the closest both sides have come to reaching an agreement since the war began.
Investors remain caught between diplomacy and supply risks
“From a broader perspective, oil markets have remained stuck between diplomacy and disruption for more than two months, with investors’ emotions being manipulated by headlines almost daily,” said Priyanka Sachdeva, senior market analyst at Phillip Nova.
“If a formal deal eventually materialises, oil prices could witness a free fall as geopolitical premiums rapidly evaporate from the market. However, any fresh signs of attacks on oil infrastructure or escalation in the Middle East could easily trigger another parabolic spike in crude prices.”
Supply concerns persist despite peace hopes
Even if a peace agreement is ultimately reached, global oil supplies are still expected to remain tight in the near term because shipments from the Gulf region would take several weeks to fully resume and reach refiners around the world.
As a result, oil companies are likely to continue drawing down storage inventories to satisfy strong summer demand.
Data released on Wednesday by the U.S. Energy Information Administration showed that U.S. crude and fuel inventories declined again last week as countries continued efforts to offset supply disruptions linked to the Iran conflict.
Crude oil inventories fell by 2.3 million barrels to 457.2 million barrels during the week, compared with analyst expectations in a Reuters survey for a drawdown of 3.3 million barrels.