Inframe News – Oil prices extended their slide on Thursday as traders reacted to growing hopes that diplomatic talks could help reopen the Strait of Hormuz. Brent crude fell 60 cents, or 0.7%, to $87.24 a barrel, while U.S. West Texas Intermediate crude dropped 56 cents, or 0.7%, to $81.67.
The latest declines put Brent on track for a fourth straight session of losses. WTI was heading for its fifth consecutive daily drop as traders focused on developments involving Iran, Oman and Qatar.
The Strait of Hormuz has become a major focus for global energy markets because of its role in transporting oil and natural gas from the Middle East. Before the current conflict began on February 28, shipments through the waterway represented roughly one-fifth of global consumption of the two fuels.
Traffic through the strait has fallen sharply since the conflict disrupted shipping in the region. Reuters reported that flows have dropped to around one-quarter of pre-war levels, keeping supply concerns active despite the recent decline in crude prices.
Iran and Oman are working on the details of an agreement concerning control of the strategic waterway. Iranian officials have said the two countries have reached an understanding on how to share the strait and its revenues, while further diplomatic discussions are continuing.
Qatar is also involved in the latest diplomatic push, with talks expected to address the wider regional conflict and the movement of energy shipments. The possibility of increased tanker traffic has given traders a reason to reduce some of the supply-risk premium built into oil prices.
The decline in crude prices follows a sharper sell-off on Wednesday. Brent fell more than 2% during the session and reached its lowest level in more than two weeks, while WTI also dropped to its lowest point since August 10.
Oil prices recovered some ground during Wednesday’s session after U.S. inventory data showed a smaller-than-expected increase in crude stocks. The Energy Information Administration reported that U.S. crude inventories rose by 95,000 barrels to 428.9 million barrels for the week ended August 21.
The inventory increase was well below the 597,000-barrel rise expected by analysts in a Reuters poll. That data helped limit the losses as traders weighed the potential for tighter U.S. supplies against improving expectations for Middle East shipping conditions.
Despite the recent decline, the oil market remains sensitive to any changes around the Strait of Hormuz. A renewed disruption in shipping or a breakdown in diplomatic efforts could quickly bring supply concerns back into focus.
Energy traders are also watching the broader impact of the conflict on regional production and transportation. Damage to energy infrastructure and reduced tanker movements have already cut available supplies, leaving the market dependent on developments far beyond normal production and demand figures.
The changing oil market is also affecting the influence of major producers. Reuters reported that OPEC+’s share of global oil production had fallen to about 40% in July from more than 48% before the conflict, while China’s changing crude demand has given Beijing a larger role in shaping global prices.
