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

Oil prices continued to decline on Thursday, with Brent crude futures dropping 60 cents, or 0.7%, to $87.24 a barrel, marking a fourth consecutive day of losses. West Texas Intermediate crude futures also fell 56 cents, or 0.7%, to $81.67, marking a fifth day of reductions. Iran and Oman are reportedly working to finalize an agreement to control the Strait of Hormuz, a key waterway that connects major Gulf oil producers to global markets, according to a senior Iranian source.

The Strait, which was previously carrying oil and natural gas shipments equivalent to about one-fifth of global consumption, has seen oil flows drop to around one-quarter of their pre-war levels since Iran began restricting it in response to the U.S.-Israeli war on Iran in February. Daniel Hynes, a senior commodity strategist at ANZ, noted that while talks between Iran and Qatar may ease Middle East supply concerns, concerns over market shortages still persist.

Qatar's prime minister is set to travel to Iran on Thursday to resume diplomatic talks aimed at ending the conflict, which has been ongoing for nearly six months. The U.S. has temporarily halted its attacks on Iran and is seeking to exert additional economic pressure on the country, which has raised expectations for an improvement in Gulf supply disruptions.

However, Iran and Oman remain at odds over demands to end the fighting, and Iran has continued to target shipping in the Gulf and Strait to assert control over the waterway. Additionally, the Middle East war and the Russia-Ukraine war are impacting the diesel market, with Middle East refineries damaged in the conflict and Ukraine disrupting Russian diesel exports.

Distillate stockpiles, including diesel and heating oil, have hit their lowest level ever for this time of year, according to the U.S. Energy Information Administration.