upcoming U.S.-Iran talks revive de-escalation hopes
Oil prices fell on Tuesday even as a major winter storm battered crude production and impacted refineries on the U.S. Gulf Coast.
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Oil prices fell on Thursday after Washington and Tehran agreed to hold talks in Oman on Friday, although disagreements remain over the scope of the discussions.
U.S. crude oil fell 1.4% to $64.26 a barrel in Asian trading (8:50 p.m. ET Wednesday). The global indicator Brent also fell by 1.4 percent to $68.49 per barrel.
Iran wants to focus negotiations on its own issue Long-running nuclear dispute with Western powersWhile the USA wants the agenda to include Tehran’s ballistic missile program, Allegation of support for armed groups across the Middle East and its local human rights record.
On Wednesday, US President Donald Trump said Iran’s Supreme Leader Ayatollah Ali Khamenei “should be very concerned”, causing oil to gain nearly 3% in value.
Oil prices fell after US-Iran talks were announced
Trump warned last month that he could order an attack on Iran if Tehran failed to reach a deal on its nuclear program. He had also threatened to intervene in support of protesters speaking out against the Islamic Republic.
Analysts have warned that markets may be overinterpreting diplomatic signals that could quickly reverse.
“Messages about Iran talks can be difficult to filter, which could lead to de-escalation, but it could also just be a tactical distraction ahead of military action,” said Saul Kavonic, head of energy research at MST Marquee, who expects the oil market to “bounce” as sentiment around the Iran talks improves and the real outcomes become clear.
He added that despite the decline in prices, fundamental risks remain high. “After all, the fact that the United States and its allies have accumulated large military assets in the region suggests that an attack is more likely than not, and oil prices are at a premium to at least partially reflect this.”
Other analysts reiterated the fragile nature of the diplomatic thaw and asymmetric risks to oil supplies if tensions flare again.
“Oil markets continue to react to the on-again, off-again resumption of potential talks between the United States and Iran, reflecting the deep distrust that both sides have in each other,” said Andy Lipow, president of Lipow Oil Associates.
While Lipow said he does not expect Washington to directly target Iran’s oil infrastructure, the risk of escalation could still come from Tehran. “Iran could threaten tankers passing through the Strait of Hormuz to stop loadings, and in the worst case attack these tankers to block the waterway, causing oil prices to rise significantly.”
The Strait of Hormuz between Oman and Iran is a vital channel. one fifth of global oil production It flows daily, according to the U.S. Energy Information Administration.
It is an important waterway connecting crude oil producers in the Middle East to key markets around the world.
Analysts at Citi warned that upward pressures remain in the market.
Citi pointed out that uncertainty regarding US actions against Iran and India’s purchase of Russian oil are the main factors, adding, “Crude oil prices have eased the moderate risk premium due to discussions regarding the upcoming US-Iran talks, but both we and market participants remain concerned about upside risks.” he said.
Citi noted that market positioning continues to reflect supply concerns, with short-term delivery oil at a premium to later months and skewed call option pricing that suggests traders are still paying to hedge against higher prices.
