Pakistan-brokered peace efforts between the United States (US) and Iran pushed oil prices sharply lower on Wednesday, with crude falling to its lowest level in two weeks amid growing expectations of a possible agreement to end the war in the Middle East.
Brent crude futures settled down $8.60, or 7.83 percent, at $101.27 a barrel after briefly falling below $100 for the first time since April 22. US West Texas Intermediate crude also declined by $7.19, or 7.03 percent to settle at $95.08 a barrel.
The decline came after reports suggested Washington DC and Tehran were moving closer to an initial peace agreement.
A source involved in mediation efforts through Pakistan said that the United States and Iran were nearing a one-page memorandum of understanding aimed at easing tensions.
Iran confirmed on Wednesday that it was reviewing a new proposal from Washington DC. According to Iran’s ISNA news agency, a foreign ministry spokesperson said that Tehran would respond soon through Pakistan.
Iran had earlier maintained that it would only accept a “fair and comprehensive agreement”.
US media outlet Axios reported that Washington DC was expecting Iran’s response on several key points within the next 48 hours, with sources describing the negotiations as the closest both sides have come to a deal since the war began.
“There’s a growing sense that the chance of the Strait of Hormuz reopening is greater, regardless of whether we get a lasting peace deal with Iran or not,” said Phil Flynn, senior analyst at Price Futures Group.
Both oil benchmarks touched their lowest levels in two weeks during trading. Brent crude dropped to an intraday low of $96.75 before recovering some losses after US President Donald Trump said it was “too soon” to discuss direct talks with Tehran.
At the same time, a senior Iranian parliamentarian reportedly dismissed the US proposal, saying it appeared more like a “wish list” than a practical agreement.
The US military also announced on Monday that it had destroyed several Iranian small boats during operations linked to helping stranded ships leave the Strait of Hormuz.
“A deal announcement would move futures further immediately, in fact even the potential of a deal is already triggering a decline in oil prices,” said Paola Rodriguez-Masiu, chief oil analyst at Rystad Energy.
She noted, however, that global oil shipments would not return to normal immediately even if access through the Strait of Hormuz was restored.
“The six-to-eight-week lag between credible access conditions and real flow normalization is not a conservative estimate, it is a structural feature of how shipping markets work,” she explained.
