Oil slips as investors focus on Hormuz talks

Oil prices dropped on Wednesday, as investors kept an eye on Iran and Oman's discussions about the Strait of Hormuz, and a smaller-than-expected increase in U.S. crude stocks dampened losses. Brent crude futures slipped 71 cents, or 0.8%, to $87.87 a barrel, while West Texas Intermediate crude futures fell 48 cents, or 0.58%, to $81.88.

Both benchmarks had previously hit their lowest levels since mid-August 10 in the morning session due to hopes of more traffic through the crucial strait. The decline eased after official oil inventory data revealed that U.S. crude inventories rose by less than expected last week, according to the Energy Information Administration.

The market's mood shifted from anticipating protracted disruption and possible escalation to the prospect of partial reopening, negotiated shipping arrangements, and a reduced chance of renewed military conflict, according to Saxo Bank's head of commodity strategy, Ole Hansen. Iran and Oman are negotiating the specifics of an agreement on the Strait, with a senior Iranian source stating that the two nations have agreed on how to share the waterway and its revenues.

Prior to February's Israeli airstrikes against Iran, the Strait of Hormuz handled about a fifth of global oil and gas supplies. As of Tuesday, only five cargo vessels had passed through the waterway, down from an average of 15 during the previous five days and significantly below pre-war levels. Negotiations to reach a wider settlement in the Iran conflict are ongoing, with Pakistan and Iran reportedly making significant progress during talks after Pakistan's interior minister visited Tehran on Tuesday.

Additionally, Ukraine's military targeted Lukoil's NORSI oil refinery in Russia's Nizhny Novgorod region on Wednesday night, according to the Ukrainian General Staff.