Oil prices drop more than $1 as hopes for Iran, Ukraine peace talks pressure markets

Oil prices slipped by over a dollar on Thursday, driven by optimism surrounding potential peace talks in Iran and Ukraine. The Brent futures contracted by $1.14, or 1.2%, to $91.62 per barrel, while the US West Texas Intermediate (WTI) crude futures tumbled by $1.04, or 1.2%, to $85.49. Earlier, Brent had climbed around 1.4% and WTI rose by 0.6%, after reaching two-month lows the previous day.

The market downturn was attributed to expectations of ongoing behind-the-scenes efforts to broker a ceasefire between Russia and Ukraine, and the perceived low likelihood of an Iran war escalating ahead of the upcoming US-China summit, according to Hiroyuki Kikukawa, chief strategist of Nissan Securities Investment. However, Kikukawa cautioned that uncertainty over the Strait of Hormuz would likely prevent a major market collapse.

Russian and Ukrainian negotiators finalized a significant prisoner exchange during a two-day peace conference in Abu Dhabi, though US mediators noted persistent differences on major territorial issues. Ukrainian President Volodymyr Zelenskiy expressed hope for tangible results on resolving the war this year. Meanwhile, Iran's security chief, Mohsen Rezaei, warned that the country would not permit any enriched nuclear material to leave its borders, vowing consequences if the US initiates new strikes.

Washington insisted that nuclear matters should be addressed in initial talks with Iran towards ending the eight-month conflict, while US officials downplayed the necessity for additional military actions. OPEC+ crude oil production increased in October, primarily due to a substantial rise in Saudi Arabia's output, despite persistent disruptions to shipments through the Strait of Hormuz.

US crude inventories rose by 9 million barrels in the preceding week, as per data from the American Petroleum Institute, with official figures from the US Energy Information Administration slated for release on Thursday, delayed due to a national holiday in the United States the previous day.