Oil drops on hopes of US-Iran talks resumption

Oil prices declined on Friday as investor hopes grew that the conflict in the Middle East may be nearing an end, fueled by prospects of further talks between the United States and Iran over the weekend and the commencement of a 10-day ceasefire between Israel and Lebanon.

Brent crude contracts dropped by $3.09, or 3.11%, to $96.30 per barrel by 09:42 GMT, while U.S. West Texas Intermediate (WTI) crude contracts fell by $4.01, or 4.23%, to $90.68 per barrel.

Giovanni Staunovo, an analyst at UBS, noted that "oil prices are reacting with extreme sensitivity to headlines of either escalation or de-escalation," following President Donald Trump’s remarks on Thursday that a deal with Iran is "very close."

At these levels, Brent contracts were heading toward a weekly gain of about 1.2%, while WTI contracts were on track for a decline of approximately 6% compared to last Friday's close.

Regarding a major sticking point in negotiations, Trump stated that Tehran offered not to possess nuclear weapons for more than 20 years, telling reporters outside the White House: "We’ll see what happens, but I think we’re very close to making a deal with Iran."

Despite prices falling below $100 per barrel, they remain elevated above the $90 mark this week, after having surged by about 50% during March.

Tamas Varga, an analyst at PVM, explained that the temporary nature of the Israel-Lebanon ceasefire, Israel's aim to significantly weaken the Iranian regime, and the low probability of an immediate reopening of the Strait of Hormuz are all factors providing price support and limiting the decline.

The Israeli military campaign in Lebanon had been a major obstacle to the peace agreement sought by the Trump administration to end the war launched by the U.S. and Israel in late February.

In this context, U.S. and Iranian negotiators have lowered their ambitions for a comprehensive agreement, shifting instead toward drafting an interim memorandum aimed at preventing a renewal of the conflict, according to two Iranian sources.

In a related development, France and Britain are set to chair a meeting of nearly 40 countries to send a message to the United States that its allies are ready to contribute to restoring energy flows through the Strait of Hormuz once conditions permit.

Ole Hansen, an analyst at Saxo Bank, said: "Once things settle down, the hard work of restarting ship movements and organizing their routes will begin. There is no doubt that a return to normal will take months, and the current supply tightness will continue to support the refined products market."

Analysts at ING estimate that approximately 13 million barrels per day of oil flows have been disrupted as a result of the closure of the Strait of Hormuz.