Oil prices dropped by around 4% early on Wednesday as hopes of a U.S.-Iran deal outweighed concerns about rapidly drawing inventories, with the Strait of Hormuz remaining closed due to fresh U.S.-Iran hostilities.
As of early Wednesday trade in Europe, Brent crude futures fell $3.12 to $74.50 a barrel, while U.S. West Texas Intermediate crude lost $2.98 to $70.45 a barrel. The declines came after reports that U.S. and Iranian negotiators had made progress in talks over Iran's nuclear program and sanctions relief.
However, the Strait of Hormuz, a critical chokepoint for about 20% of global oil supply, remained closed for a second day after a series of incidents involving Iranian naval vessels and U.S. warships. The closure has raised fears of supply disruptions, but traders appeared more focused on the potential for a diplomatic breakthrough.
Analysts noted that a deal could lead to the return of Iranian oil exports, which have been under U.S. sanctions, adding up to 1 million barrels per day to global markets. This prospect has outweighed immediate supply concerns, though the situation remains fluid.
Market participants are now watching for official statements from both governments, as well as any further developments in the Strait of Hormuz, which could quickly reverse the price decline.
