Oil prices declined on Wednesday as investors reassessed geopolitical risks following diplomatic progress toward reopening the Strait of Hormuz, a critical shipping route for global crude supplies.
Brent crude futures fell 0.84% to close at $87.84 a barrel, while West Texas Intermediate crude dropped 0.16% to $82.23. Both benchmarks hit their lowest levels since August 10 during the session, reflecting reduced concerns over prolonged supply disruptions.
U.S. crude inventories increased by 95,000 barrels to 428.9 million barrels for the week ending August 21, exceeding analyst expectations in a Reuters poll that had forecast a rise of 597,000 barrels. The unexpected build added pressure to prices amid waning supply disruption fears.
Shipping traffic through the Strait of Hormuz, a chokepoint for roughly one-fifth of global oil and gas supplies before the late-February conflict between Israel and Iran, slowed sharply. Only five cargo ships passed through the waterway on Tuesday, down from an average of 15 over the prior 10 days.
Diplomatic efforts to ease tensions in the region gained momentum. Pakistan and Iran reported "significant progress" in negotiations following a visit by Pakistan’s Interior Minister to Tehran, according to local officials. Qatar’s Prime Minister, Mohammed bin Abdulrahman al-Thani, was scheduled to meet with Iranian authorities on Thursday to discuss de-escalation, Qatar’s foreign ministry spokesperson said.
Iran and Oman are also working on an agreement to share control and revenues of the strait, according to a high-ranking Iranian source cited on Wednesday. Iran’s Revolutionary Guard had previously announced the framework for cooperation with Oman.
Ole Hansen, head of commodity strategy at Saxo Bank, noted the market had shifted from pricing a high probability of prolonged disruption to anticipating partial reopening, negotiated transport agreements, and a reduced risk of further military escalation. "A reliable agreement that quickly restores traffic through the Strait of Hormuz could strip away another layer of the geopolitical premium," he said.
