Key Points
- Oil prices slipped after a sharp rally as traders assessed the prospects of US-Iran peace
- Renewed tensions around the Strait of Hormuz continue to threaten global energy supplies
- Markets remain highly volatile as investors weigh the possibility of sanctions relief against risks of wider regional conflict
ISLAMABAD: Global oil prices pulled back on Wednesday after surging nearly four per cent a day earlier, as investors monitored Iran-IS negotiations following renewed military escalation in the Middle East.
Brent crude futures fell around 1.4 per cent to nearly $98 a barrel.
Likewise, US West Texas Intermediate (WTI) crude dropped about 1.8 per cent to trade close to $92 a barrel during Asian trading hours, according to media reports.
The decline came after oil markets rallied sharply on Tuesday following fresh US military strikes inside Iran.
The latest strikes, which the US described in self-defence, revived fears over disruptions to energy shipments through the Strait of Hormuz.
The Strait is one of the world’s most strategically important oil transit routes.
Nearly a fifth of global oil and gas trade normally passes through the narrow waterway linking the Arabian Gulf to international markets.
Iran accused Washington of violating a ceasefire by targeting positions near the Strait of Hormuz. In contrast, US officials described the strikes as defensive operations.
The latest confrontation has complicated efforts to restore stability after an April ceasefire and the consequent Islamabad talks, which had raised hopes for reopening the vital shipping corridor.
Diplomatic signals from both sides, however, remained positive and prevented a deeper market selloff.
US Secretary of State Marco Rubio suggested that an agreement with Tehran could still emerge within days. Meanwhile, Iranian officials continued demanding access to frozen financial assets and relief from sanctions as part of the potential deal.
Analysts said oil markets are now being driven almost entirely by geopolitical headlines.
Traders are rapidly recalculating the “risk premium” attached to crude prices every time negotiations appear to improve or deteriorate.
Despite the renewed hostilities, reports that several liquefied natural gas (LNG) tankers recently passed through the Strait of Hormuz eased fears of a complete blockade and strengthened expectations that limited energy flows could resume in the near term.
Still, market observers warned that supply risks remain elevated. Energy analysts noted that global emergency reserves have already been drawn down significantly.
After months of conflict and shipping disruptions, there are hardly any buffers if tensions intensify further during the peak summer demand season, according to The Guardian.
The conflict is also beginning to affect financial markets beyond oil. Investors fear that prolonged instability in the Gulf could disrupt global investment flows from major energy-producing states.
Meanwhile, Israel continued violating the ceasefire with Lebanon, adding another layer of uncertainty to regional peace efforts and further complicating attempts to stabilise energy markets.
Financial institutions and commodity traders remain divided over the next direction of crude prices.
Some analysts believe a diplomatic breakthrough could push Brent crude back below $90 a barrel over the coming months.
At the same time, others warn that any collapse in negotiations or fresh disruption in the Strait of Hormuz could quickly send prices back above $100.
