Global oil prices fell by more than $1 per barrel today as renewed expectations of diplomatic progress in the Middle East and Russia-Ukraine conflicts weakened the geopolitical risk premium supporting the market, although uncertainty over the Strait of Hormuz continues to limit the downside.
As at 04:40 am West Africa Time (WAT), Brent crude traded at $91.62 per barrel, down $1.14 or 1.2 per cent, while US West Texas Intermediate (WTI) crude declined by $1.04 or 1.2 per cent to $85.49 per barrel.
The decline followed Wednesday’s recovery, when Brent gained about 1.4 per cent and WTI advanced 0.6 per cent after both benchmarks touched their lowest levels in more than two months on Tuesday. The latest losses indicate that diplomatic expectations are once again influencing market sentiment, despite the continuing threat to energy infrastructure and shipping routes in the Middle East.
Market participants are weighing prospects for a ceasefire in Ukraine and the possibility that the Iran conflict may not escalate further ahead of the planned US-China summit next week. Russian and Ukrainian negotiators agreed to a major prisoner exchange during two days of talks in Abu Dhabi, although significant disagreements, particularly over territorial issues, remain unresolved.
In the Middle East, however, Tehran has maintained a hard line on its nuclear programme. Iranian security chief Mohsen Rezaei said the country would not allow any enriched nuclear material to leave its territory and warned of consequences if Washington launched further strikes. The United States has maintained that nuclear issues must form part of any initial negotiations aimed at ending the conflict.
Despite the improved diplomatic expectations, the Strait of Hormuz remains a critical source of uncertainty for the oil market. The waterway handles a substantial share of global seaborne crude and petroleum product shipments, meaning prolonged insecurity or restrictions on vessel movements could tighten available supplies and increase shipping and insurance costs.
Supply-side developments are also adding pressure. OPEC+ crude oil production increased sharply in October, led by higher output from Saudi Arabia, despite continued disruption to shipments through the Strait of Hormuz. Higher production could offset some of the supply concerns underpinning prices, depending on how much crude reaches the international market.
Meanwhile, US crude inventories rose by 9 million barrels in the latest week, according to figures from the American Petroleum Institute (API), as reported by market sources. The official inventory report from the US Energy Information Administration (EIA) is expected on Thursday after being delayed by a US public holiday.
The combination of diplomatic optimism, higher OPEC+ output and rising US crude inventories is weighing on prices, but the outlook remains sensitive to developments around the Strait of Hormuz and the progress of negotiations involving Iran, Russia and Ukraine.
