Oil prices extended declines on Tuesday as Iran and Oman resumed talks on a temporary Strait of Hormuz shipping route, while broader Middle East tensions kept a risk premium embedded in crude valuations.
Brent crude futures for November delivery fell 0.9% to $86.47 per barrel, while U.S. West Texas Intermediate crude for October delivery lost 0.6% to $81.83 per barrel. The declines followed a more than 5% slump the prior session, driven by reports of a potential ceasefire in the region.
Preliminary data from Kpler, cited by CNBC, showed just five commodity ships transiting the Strait of Hormuz on Tuesday, below the 10-day moving average of 15 vessels. The strait, which carries roughly 20% of the world's oil and liquefied natural gas, has seen reduced traffic since the escalation of regional conflicts.
Iran and Oman agreed on a new temporary shipping route during talks in Tehran, according to a senior Iranian official. However, the official noted the strait would not fully reopen until the U.S. fulfills commitments from a June ceasefire framework, including lifting blockades on Iranian ports and easing sanctions. The U.S. imposed stricter economic sanctions against Tehran the day before the talks.
Analysts warned that any agreement between Iran and Oman does not guarantee normalized oil flows through the chokepoint. ING’s commodities team stated that normalization would require the U.S. to lift its blockade on Iranian ports and ease sanctions, conditions not yet met. Vital Knowledge analysts added that a permanent geopolitical risk factor has been embedded in oil prices, with prices unlikely to return to pre-conflict levels as long as tensions remain unresolved.
The Strait of Hormuz has been a focal point of regional instability, with prior agreements failing to restore full traffic. A June framework ceasefire deal brokered with Pakistani mediation expired, and Iran has emphasized that U.S. commitments must be fulfilled before the strait can reopen fully.
