Oil prices extend losses on expectations talks will ease Middle East supply woes

Brent crude futures dropped 0.7% to US$87.24 a barrel on Thursday (Aug 27), continuing a series of losses for multiple days. West Texas Intermediate crude fell 0.7% to US$81.67. The declines came as talks between Iran and Qatar progressed, potentially allowing the Strait of Hormuz to reopen and alleviate supply issues from the Middle East conflict.

Iran and Oman are working on finalizing an agreement to manage the strait, which carries oil and natural gas shipments equivalent to around one-fifth of global consumption before the US-Israeli war on Iran began on Feb 28. Since Iran began closing the waterway, oil flows have declined to about one-quarter of their pre-war levels.

If the strait does reopen, it could ease the Gulf supply disruptions. Qatar's prime minister is set to visit Iran to resume talks aimed at resolving the nearly six-month conflict. Meanwhile, concerns over diesel shortages persist, as Middle East refineries have been damaged in the war and Ukraine has targeted Russian refineries, reducing diesel exports.

US distillate stockpiles, including diesel and heating oil, fell to 103.4 million barrels in the week ending Aug 21, the lowest level for this time of year.