Responses to peace proposals are being evaluated; oil prices have fallen amid diplomatic overtures
Although the two countries remain deeply divided on the path to a resolution, oil prices retreated on Thursday following a 4% surge in the previous session, as both Iran and the US signaled an openness to diplomacy to end the conflict.
Brent crude futures fell 92 cents, or 0.9%, to $102.16 per barrel at 07:00 TRT (04:00 GMT), while WTI crude futures dropped 77 cents, or 0.8%, to $91.39.
In fact, while Iran and the US disagree on how to end the war, they concur that diplomacy must continue.
Tehran is currently evaluating Washington's response to peace proposals that prioritize lifting the US naval blockade on Iranian ports and reopening the Strait of Hormuz.
Oil prices are declining as the market unwinds some of the geopolitical risk premium, driven by a recovery in Gulf region supplies and growing hopes for a diplomatic breakthrough between the US and Iran.
While international crude prices are more directly affected by disruptions in the Middle East and the Strait of Hormuz, WTI draws more support from the relatively isolated US supply; consequently, Brent carries a higher geopolitical and maritime route premium.
Earlier on Wednesday, Iranian security chief Mohsen Rezaei had stated that the Strait of Hormuz would not be reopened unless Iran's conditions were met. While the US notes that reaching an agreement with Iran will require a difficult and time-consuming process, it also indicates that the military option remains on the table.
Market participants are also weighing potential restrictions on US diesel exports; although there has been talk of a planned 90-day diesel ban, the White House has denied it.
Analysts and market observers have warned that such a move would have little impact on alleviating high energy prices and could worsen the global supply situation, further disrupting economies.
According to Energy Information Administration (EIA) data, US distillate stockpiles, which include diesel and heating oil, fell by 428,000 barrels last week to 107.4 million barrels.
Meanwhile, US crude oil inventories rose by 3 million barrels last week to 426.4 million barrels, whereas analysts had expected a decline of 641,000 barrels.
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