Oil prices slide 2% on Iran-Oman talks to reopen Strait of Hormuz

Oil prices declined around 2% on Wednesday, following a drop on the previous day, following fresh optimism that the Strait of Hormuz might reopen. The price of Brent crude futures fell by $1.78, or 2.0%, reaching $86.80 a barrel, while US West Texas Intermediate crude futures dropped by $1.49, or 1.8%, to $80.87. These declines were larger than the over 3% losses seen on Tuesday.

The market's reaction to developments surrounding navigation through the Strait of Hormuz and hopes for progress in Iran-Oman talks have driven selling, according to Mitsuru Muraishi, an analyst at Fujitomi Securities. However, uncertainty about the outlook has prompted some bargain buying, preventing further losses, and prices are likely to remain within a range for now.

Iran announced it had resumed talks with Oman to manage the Strait as it faces increased economic pressure from US President Donald Trump. The two nations have been holding on-and-off discussions for weeks about controlling traffic through the waterway, which previously accounted for one-fifth of global oil and liquefied natural gas shipments before the war began in February.

On Tuesday, Iran and Oman discussed a temporary navigational corridor and agreed to remove mines from the strait. Despite the ongoing tensions, the US is starting to re-deploy personnel to some diplomatic missions in the Middle East that were evacuated or scaled back due to tensions with Iran, signaling a belief in a reduced risk of the conflict escalating in the near term.

However, some embassies will initially operate at reduced capacity. The US also expanded sanctions intended to cut off Iran's economic lifeline, threatening to penalize countries that continue to trade with Tehran, though no immediate penalties are slated. Additionally, an oil tanker was hit by an unidentified projectile and disabled about 9 nautical miles northeast of Oman's Ash Shishah, the entrance to the Strait of Hormuz, according to the UK Maritime Trade Operations.