Oil nears one-month low on 'constructive' Oman-Iran talks and halt to US strikes

Oil prices tumbled by 3% to a near one-month low on Wednesday, as hopes for easing tensions between Iran and Oman helped drive the decline. Brent crude, which accounts for two-thirds of the world's oil, dropped 3.03% to $85.90 a barrel, while West Texas Intermediate, the gauge for US crude, fell 2.95% to $79.93 per barrel. This marks the first time Brent has reached $85 and WTI has slipped below $80 since early this month.

Over the past week, crude prices have declined by nearly 7% and 6.1%, respectively. The latest drop occurred as the market began to sense that the US and Iran were seeking an exit ramp to avoid further economic harm, according to Ole Hansen, head of commodity strategy at Denmark's Saxo Bank. The swift shift in sentiment has been marked by a focus on diplomacy rather than renewed tension, with investors now unwinding part of the geopolitical risk premium embedded in crude prices.

Despite the optimism, the physical energy market remains far from normal, as investors are trading the prospect of improved supply conditions before they actually materialize. The oil market continues to be a focal point in the ongoing war in Iran, with investors closely monitoring developments aimed at resolving the nearly seven-month conflict.

Omani Foreign Minister Badr Al Busaidi reported holding "constructive dialogue" with his Iranian counterpart Abbas Araghchi in Tehran, expressing hope for a temporary corridor and practical arrangements to restore safe navigation in the Strait of Hormuz. However, Iran asserts that the new shipping arrangement with Oman does not signify a reopening of the waterway, which Tehran claims will reopen only when the war ends and the blockade is lifted.

Meanwhile, US Secretary of State Marco Rubio assured foreign counterparts that Washington is not planning to launch new strikes against Iran "for the time being" and will instead focus on economic pressure. The US has also reportedly prepared to send diplomats back to its embassies in the Middle East, a move indicating a reduced immediate risk of a renewed escalation.

Despite the lower oil prices, Ipek Ozkardeskaya, a senior analyst at Swissquote Group, cautioned that the decline isn't sufficient if it isn't backed by durable peace and reduced impact on refined product prices.