Supply risks persist, oil continues to fall on hopes that talks in the Middle East will ease supply issues
Oil prices fell by over $1 on Thursday, extending their losing streak. This decline was driven by expectations that talks between Iran and Qatar could open the Strait of Hormuz and alleviate supply disruptions stemming from the war in the Middle East.
Brent crude futures fell $1.07, or 1.2%, to $86.77 a barrel at 06:45 GMT, marking a fourth consecutive day of decline. WTI crude futures also fell $1.13, or 1.4%, to $81.10, marking a fifth consecutive day of losses.
Officials said Iran and Oman have agreed on the sharing of the waterway connecting major Gulf oil producers to markets, and that work is underway to finalize details of an agreement on control of the Strait.
Oil flow through the Strait of Hormuz has fallen to about a quarter of pre-war levels since the start of the war on February 28.
Crude oil prices have fallen slightly as the possibility of reopening the Strait of Hormuz increases amid ongoing talks, but concerns about shortages in the oil market persist.
The Qatari Prime Minister will travel to Iran on Thursday to restart diplomatic talks to end the nearly six-month-long conflict.
The US has halted its attacks on Iran for about a month and is trying to apply more economic pressure on Iran, which has raised investor expectations of easing supply disruptions in the Gulf.
However, the countries are far from intending to end the conflict, and Iran has attacked ships in the Gulf and the Strait to maintain control of the waterway.
Iranian officials have also said the Strait will not open unless the US abides by the temporary ceasefire agreement reached in June and subsequently broken.
The most intractable issue in the dispute is Iran's nuclear program, and a quick resolution seems unlikely. Iran also knows the importance of its geographical location and the leverage provided by the Strait of Hormuz, so the risk of prolonged uncertainty persists.
As long as supply risks continue, a certain amount of war premium may continue to be reflected in oil prices.
The impact of the Middle East conflict and the Russia-Ukraine conflict on the diesel market is noteworthy. Middle Eastern refineries were damaged in this conflict, and Ukraine, by striking several refineries in Russia, blocked exports from Russia, a major global diesel supplier.
The decrease in global diesel production is also reflected in inventory data. The US Energy Information Administration (EIA) reported on Wednesday that inventories of distilled fuels, including diesel and heating oil, fell by 2.2 million barrels to 103.4 million barrels in the week ending August 21.
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