Oil prices slipped for a second consecutive session on Wednesday, as expectations grew that negotiations between the United States and Iran could restart, potentially unlocking supply from the Middle East currently constrained by the closure of the Strait of Hormuz.
Brent crude futures fell by 16 cents, or 0.2%, to $94.63 per barrel at 06:35 GMT, following a sharp 4.6% drop in the previous session. U.S. West Texas Intermediate crude declined 70 cents, or 0.8%, to $90.58, after losing 7.9% a day earlier.
The ongoing conflict has largely disrupted activity through the Strait of Hormuz, a vital route for crude and refined products flowing from the Gulf to global markets, particularly in Asia and Europe.
U.S. President Donald Trump said that talks with Tehran aimed at ending the conflict could resume this week, after discussions over the weekend ended without agreement. However, the U.S. has also imposed a blockade on vessels departing Iranian ports, with military officials stating on Wednesday that maritime trade to and from the country has been completely halted.
Despite a two-week ceasefire, shipping through the strait remains highly uncertain, with vessel traffic running at only a small fraction of the roughly 130 ships that transited the waterway before the conflict, according to sources cited on Tuesday.
“The trajectory of oil prices will likely hinge less on battlefield developments and more on diplomatic momentum. Markets are increasingly reacting to headlines around negotiations rather than troop deployments,” said Priyanka Sachdeva, senior market analyst at Phillip Nova.
“Each signal of renewed dialogue has been met with price declines, suggesting that traders are systematically unwinding the ’war premium’ embedded into crude earlier this month.”
Refiners are scrambling to secure alternative sources of crude, driving up premiums for oil from regions such as the U.S. Gulf Coast and the North Sea. A shipment of WTI Midland bound for Rotterdam traded at a record premium of $22.80 per barrel above European benchmark prices on Tuesday.
A U.S. naval destroyer intercepted two oil tankers attempting to leave Iran on Tuesday, according to a U.S. official.
“While diplomatic headlines suggest the possibility of renewed U.S.-Iran talks and even a temporary easing of transit restrictions, the physical reality remains fragmented,” the Schork Group said in a note.
The market could face additional supply constraints after two U.S. administration officials told Reuters that Washington will not extend a 30-day waiver on sanctions covering Iranian oil shipments at sea, which is set to expire this week. A similar waiver on Russian oil sanctions was also allowed to lapse over the weekend.
Later on Wednesday, investors will be watching for official U.S. inventory figures from the Energy Information Administration, due at 10:30 a.m. ET (14:30 GMT).
U.S. crude inventories were expected to edge higher last week, while stockpiles of distillates and gasoline likely declined, according to a Reuters poll.
Separate figures from the American Petroleum Institute indicated that U.S. crude stockpiles rose for a third consecutive week, market sources said on Tuesday.