LONDON: Oil prices fell more than 1.5% on Wednesday as investors focused on efforts to restore shipping through the Strait of Hormuz, with signs of progress in talks involving Iran and Oman raising hopes that the vital waterway could partially reopen.
Brent crude futures, the global benchmark, were down $1.65, or 1.86%, at $86.93 a barrel by 1314 GMT. West Texas Intermediate crude futures fell $1.44, or 1.75%, to $80.92 a barrel.
Both benchmarks touched their lowest levels since August 10 earlier in the session. Brent had earlier fallen more than 2%, while later trading saw losses of about 3%.
Investors were encouraged by Iran and Oman’s announcement of efforts to establish a temporary shipping route through the Strait of Hormuz.
The proposed route would involve the two countries working to clear mines from parts of the waterway, according to an announcement by the two sides.
“It’s renewed focus on the discussion between Iran and Oman regarding a deal for transiting oil and other petrochemicals through the Strait of Hormuz. So that sort of creates some optimism,” said Bjarne Schieldrop, chief analyst for commodities at SEB Research.
Iran’s Revolutionary Guards said an agreement had been reached on the two countries’ respective shares of the strait’s waters and revenues, according to the semi-official Tasnim news agency.
The Revolutionary Guards spokesperson also said the United States was obstructing the agreement process and causing delays, according to Tasnim.
“The market has moved from pricing a high probability of prolonged disruption and renewed escalation towards pricing partial reopening, negotiated shipping arrangements and a lower risk of renewed military confrontation,” said Ole Hansen, head of commodity strategy at Saxo Bank.
“A credible agreement that rapidly restores Hormuz traffic could remove another layer of geopolitical premium,” he added.
Despite the optimism, traffic through the Strait of Hormuz remains subdued.
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Only five commodity vessels transited the waterway on Tuesday, preliminary data from ship tracker Kpler showed. That compared with a 10-day average of 15 vessels and remained well below pre-war levels.
The Strait of Hormuz is a critical route for global energy supplies, and prolonged disruption has kept a significant geopolitical premium in oil prices.
Efforts to reach a broader settlement to the conflict are also continuing.
Pakistan and Iran made “significant progress” in talks to revive the Islamabad Memorandum of Understanding (MoU) between Iran and the US, Pakistan’s interior minister said on Tuesday at the end of a visit to Tehran by Pakistan’s Chief of Defence Forces and Chief of Army Staff Field Marshal Syed Asim Munir.
The developments came after Washington on Monday expanded sanctions aimed at squeezing Iran’s economy. The United States also warned that countries continuing to do business with Tehran could face penalties.
