Oil prices decline as supply disruption fears recede on hopes for US-Iran talks

Oil prices declined on Tuesday as signs appeared of the possibility of resuming talks to end the war between the United States, Israel, and Iran, which eased concerns of supply shortages resulting from the blockade imposed on the Strait of Hormuz.

Brent crude contracts fell by 64 cents, or about 0.6%, to $98.72 per barrel, while U.S. West Texas Intermediate (WTI) crude dropped by $2.43, or 2.5%, to $96.65 per barrel.

Both benchmarks had recorded gains in the previous session, as Brent rose by more than 4% and WTI by about 3%, following the U.S. military's start of a blockade on Iranian ports. Oil prices have also jumped by about 50% during the last month, which is a record level.

Tamas Varga, an analyst at PVM Oil Associates, said that talk of resuming negotiations between Washington and Tehran pushed prices downward, but it ignored the loss of physical quantities of oil that are no longer reaching markets.

The International Energy Agency reported that attacks on energy infrastructure in the Middle East and the effective closure of the Strait of Hormuz by Iran have led to the largest disruption of oil supplies in history, with the loss of about 10.1 million barrels per day in March.

The agency emphasized that the resumption of oil flows through the Strait of Hormuz remains the most important factor in easing pressures on supplies, prices, and the global economy.

The U.S. military announced on Monday that the scope of the blockade would extend eastward to the Gulf of Oman and the Arabian Sea, while ship tracking data showed that two tankers changed their courses when the implementation of the blockade began. In contrast, NATO countries, including Britain and France, refrained from participating in the blockade, calling for the reopening of the waterway.

Iran responded by threatening to target ports of countries bordering the Gulf after the collapse of weekend talks in Islamabad, which were aimed at resolving the crisis of the Strait through which about one-fifth of global oil and liquefied natural gas supplies pass in normal conditions.

Despite this, shipping data showed that three Iran-linked tankers entered the Gulf and were allowed to pass since their destinations were not Iranian ports.

In a related context, sources reported that U.S. and Iranian negotiating teams may return to Islamabad later this week, while a U.S. official confirmed that efforts to reach an agreement continue, and Pakistani Prime Minister Shehbaz Sharif indicated that endeavors are still ongoing.

Varga added that in the event of the failure of talks, a return of prices to the peak levels recorded in March cannot be ruled out, especially with the possibility of the continued decline in global oil inventories during the third quarter and beyond.

In its forecasts, the International Energy Agency sharply lowered its estimates for global oil supply and demand growth, expecting demand to fall by about 80,000 barrels per day in 2026, and supplies to decline by 1.5 million barrels per day in the same year.

On the other hand, Russian petroleum product exports from the Black Sea port of Tuapse for April were revised upward by about 60% to reach 1.27 million tons, compared with 794,000 tons in the initial plan, according to trade data and Reuters calculations. Rosneft also diverted supplies to the refinery from the port of Novorossiysk after the terminal sustained damage.

In the United States, the average spending of truck fleets on diesel fuel reached $5.52 per gallon on Monday, exceeding the previous record of $5.50 recorded in June 2022 following the Russian invasion of Ukraine, in an indicator reflecting the growing pressures on the economy, especially since the transportation sector relies heavily on small businesses.