Oil prices fell more than 1.5% on Wednesday, as investors focused on Strait of Hormuz talks between Iran and Oman, while shipping disruption continued in the major oil-exporting region.
Brent crude futures were down $1.65, or 1.86%, to $86.93 a barrel at 1314 GMT. West Texas Intermediate crude futures were down $1.44, or 1.75%, at $80.92.
Both benchmarks fell to their lowest levels since August 10 earlier in the session.
Talks over Strait of Hormuz keep geopolitics in focus
"It's renewed focus on the discussion between Iran and Oman regarding a deal for transiting oil and other petrochemicals through the Strait of Hormuz. So that sort of creates some optimism," said Bjarne Schieldrop, chief analyst, commodities, at SEB Research.
There was uncertainty around a potential deal between Iran and Oman on their share of the Strait of Hormuz and its revenue, with a spokesperson for Iran's Revolutionary Guards saying a deal had been struck, according to a report by the semi-official Tasnim news agency on Wednesday. However, a senior Iranian source told Reuters that an agreement had not yet been finalised.
"The market has moved from pricing a high probability of prolonged disruption and renewed escalation towards pricing partial reopening, negotiated shipping arrangements and a lower risk of renewed military confrontation," said Saxo Bank head of commodity strategy Ole Hansen.
"A credible agreement that rapidly restores Hormuz traffic could remove another layer of geopolitical premium."
Traffic through the strait remains subdued. Only five commodity vessels transited the waterway on Tuesday, preliminary data from ship tracker Kpler showed, down from the 10-day average of 15 and well below pre-war levels.
Shipping flows, sanctions and refinery attacks add to market backdrop
Two supertankers carrying 4 million barrels of Saudi crude are heading to China after loading cargoes through ship-to-ship transfers off Oman, shipping data showed on Wednesday.
Efforts to reach a broader settlement to the conflict are also continuing. Pakistan and Iran made "significant progress" in talks focused on the U.S.-Israeli war on Iran and prospects for peace, Pakistan's interior minister said on Tuesday at the end of a visit to Tehran.
On Monday, Washington expanded sanctions aimed at squeezing Iran's economy and warned it could penalise countries that continue doing business with Tehran, though it said penalties would not be imposed immediately.
Elsewhere, Ukraine's military struck Lukoil's NORSI oil refinery in the Nizhny Novgorod region overnight, the Ukrainian General Staff said on Wednesday.
XLE•
