Oil prices declined by more than 1 percent on Tuesday, partially reversing the sharp gains from the previous session, as Iran reviewed a proposed agreement with the United States to end the ongoing conflict between the two nations, according to Iran's Mehr News agency.
Market Reaction to Negotiations
President Donald Trump stated on Monday that negotiations with Iran were ongoing and that a deal to extend the ceasefire and reopen the Strait of Hormuz could be reached within the next week. However, Iran has not yet responded to the proposed final text of the temporary agreement, as cited by Mehr from an unnamed source.
Brent crude futures dropped by $1.13, or 1.2 percent, to $93.85 per barrel at 1130 GMT, while US West Texas Intermediate fell by $1.09, or 1.2 percent, to $91.07 per barrel. Both benchmarks had surged more than 5 percent on Monday, following a decline of over 16 percent in May amid hopes for a peace deal.
Supply Concerns Persist
Despite the progress in talks, "oil flows through the strait remain restricted" due to the ongoing conflict in the region, noted UBS analyst Giovanni Staunovo. The head of the International Energy Agency's oil industry and markets division warned on Tuesday that global oil inventories could reach critically low levels just before the peak summer demand period if stock draws continue at their current pace.
An executive from Abu Dhabi's state oil company also stated on Tuesday that August could mark a tipping point for significantly higher oil prices if demand picks up and the supply crisis caused by the Iran war persists.
Analyst Insights
Tim Waterer, chief market analyst at KCM Trade, commented: "The market is currently focused on whether there's any concrete progress or setbacks in US-Iran negotiations, the tone and substance of statements from both sides, and actual physical tanker movements through the waterway." He added that the status of negotiations will determine whether the current risk premium remains embedded in oil prices or begins to unwind.
Since the war began, Iran has effectively halted most non-Iranian shipping in and out of the Gulf, choking off about a fifth of global oil and liquefied natural gas flows and driving prices up by 50 percent or more. The US has also maintained a blockade on Iranian ports.
