US and Iran Prepare for Talks on Friday, Oil Prices Fall 2% as Supply Concerns Ease
Oil prices fell nearly 2% on Thursday after the US and Iran agreed to hold talks in Oman on Friday, following threats of an attack on OPEC member Iran. A potential agreement eased concerns that supply from the key oil-producing region of the Middle East could be disrupted.
Brent crude futures fell $1.44, or 2.07%, to $68.02 a barrel at 03:35 GMT. WTI crude also traded down $1.34, or 2.06%, at $63.80.
Oil prices rose nearly 3% on Wednesday after a media report suggested that Friday's planned talks between the US and Iran could fail. However, later in the day, officials from both sides said the talks would continue on Friday.
The oil price erased some of its geopolitical risk premium following news of the US-Iran talks in Oman on Friday.
However, the two sides still have significant differences on what the talks should include. Iran is open to discussing its nuclear program, including uranium enrichment, with Western countries. However, the US also wants to include Iran's ballistic missiles, its support for armed proxy groups in the Middle East, and its treatment of its own people in the discussions.
New differences are likely to emerge during these talks, and the risk premium is likely to rise again.
Despite the upcoming talks, there are concerns that Trump could still carry out his threats against Iran, the fourth-largest producer among OPEC members, potentially leading to a wider conflict in the oil-rich region.
In addition to potential disruptions to Iranian production in the event of conflict, there are concerns that exports from other Gulf producers could also be affected.
Approximately one-fifth of global oil consumption passes through the Strait of Hormuz. Iran, along with other OPEC members, Saudi Arabia, the United Arab Emirates, Kuwait, and Iraq, exports a large portion of its crude oil through this strait.
Analysts noted that the strengthening US dollar and volatility in precious metals also weighed on commodities and overall risk sentiment on Thursday.
Meanwhile, according to data released Wednesday by the Energy Information Administration (EIA), US oil inventories fell last week following a winter storm that affected much of the country.
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