Key Points
- Brent slips below $89 a barrel
- Ceasefire proposal eases supply fears
- Shipping disruption concerns persist
ISLAMABAD: Oil prices edged lower on Tuesday as Pakistan-led diplomatic efforts to contain the conflict between the United States and Iran eased concerns about disruption to global energy supplies, offsetting the impact of fresh military exchanges.
Brent crude futures fell 35 cents, or 0.4 per cent, to $88.87 per barrel, while US West Texas Intermediate (WTI) crude for September delivery traded around $82.47 per barrel.
The decline came after reports claimed that regional mediators had presented a 10-day ceasefire proposal to reduce tensions and create space for renewed diplomatic contacts between Washington and Tehran.
Oil trade sentiment divergent
The market remained caught between competing forces. On one hand, investors continued to monitor military developments that could threaten oil production and transportation across the Middle East.
On the other, signs that diplomatic channels remained open encouraged traders to scale back some of the geopolitical risk premium. The risk factor had pushed prices to their highest levels in about a month earlier this week.
Oil had rallied sharply on Monday after renewed US-Iran hostilities raised concerns that the conflict could spread across the region.
Brent settled at $89.22 a barrel and WTI at $83.23, extending gains accumulated over recent weeks as investors assessed the potential impact of the confrontation on global energy supplies.
The latest military exchanges followed months of escalating tensions that have repeatedly unsettled commodity markets.
Traders are particularly concerned about any threat to shipping routes in and around the Arabian Gulf, a region that accounts for a substantial share of global crude exports.
Any disruption to these routes could have significant consequences for oil-importing nations and global inflation.
Adding to market anxiety, Yemen’s Houthi movement threatened to impose a naval blockade on Saudi Arabia.
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Although the group has not yet acted on the threat, analysts said any disruption to maritime traffic would increase risks for oil tankers and could tighten global supplies.
Despite these concerns, reports of ongoing indirect contacts between the United States and Iran through mediators helped calm markets.
According to diplomatic sources, Iran has received proposals intended to halt the current cycle of attacks and open the door to negotiations.
Investors interpreted the reports as a sign that neither side may be seeking a prolonged conflict that could destabilise the region.
The oil market has been highly volatile since tensions between Washington and Tehran escalated dramatically in late February.
Prices initially surged as traders feared that direct military confrontation could disrupt exports from major producers or threaten the Strait of Hormuz, one of the world’s most important energy chokepoints.
Roughly one-fifth of global oil consumption passes through the Strait of Hormuz, which links the Arabian Gulf with international markets.
Any threat to the waterway typically triggers an immediate reaction in energy markets because there are few alternative routes capable of handling comparable volumes of crude exports.
During the early stages of the crisis, Brent crude climbed above $100 per barrel for the first time in months as fears grew that shipping could be interrupted.
Insurance costs for vessels operating in the region also rose, increasing transportation expenses and contributing to upward pressure on oil prices.
However, markets later retreated as the worst-case supply disruption scenarios failed to materialise.
Several rounds of indirect diplomacy, supported by regional and international actors, convinced traders that both sides were attempting to avoid a broader war despite periodic military exchanges.
The recent decline in prices also reflects growing confidence that global oil supplies remain relatively well balanced.
Production from non-OPEC producers, particularly the United States, has remained robust, helping offset concerns about potential disruptions in the Middle East.
In addition, spare production capacity held by key OPEC members continues to provide a buffer against unexpected supply shocks.
Investors are also watching upcoming US inventory data for further clues about market fundamentals.
Expectations of lower crude and gasoline stockpiles could lend support to prices later this week if demand remains strong during the peak summer travel season.
