Oil prices moved lower on Wednesday, extending losses from the previous session as investors reacted to signs of diplomatic progress in the Middle East and renewed hopes that shipping through the Strait of Hormuz could gradually resume.
Brent crude futures fell about 1.6% to $87.22 per barrel, while U.S. West Texas Intermediate crude futures declined around 1.3% to $81.31 per barrel.
Oil Prices Extend Sharp Decline
The latest losses followed a drop of more than 5% on Tuesday after Russian media reported that the United States and Iran were moving closer to a new ceasefire agreement.
Russia’s state-owned RIA Novosti news agency cited Pakistani and Iranian sources in reporting that an agreement could be announced within the coming days.
The reported arrangement would include guarantees for free navigation through the Strait of Hormuz.
However, the report had not been independently verified by Investing.com at the time of publication.
Pakistan Reports Progress in U.S.-Iran Mediation
Pakistani officials have also indicated that progress has been made in diplomatic discussions with Iran.
Talks have reportedly included the possibility of restoring an interim ceasefire framework between Washington and Tehran.
Pakistan has played an important role as a regional mediator throughout the U.S.-Iran conflict. The country previously helped facilitate a temporary framework agreement signed in June, which has since expired.
Any renewed ceasefire could significantly reduce geopolitical risks surrounding global energy markets.
Iran and Oman Agree on Temporary Hormuz Route
Diplomatic efforts have also focused directly on shipping through the Strait of Hormuz.
According to Al Jazeera, a senior Iranian official said Iran and Oman had reached an agreement to establish a temporary route through the strategic waterway following talks in Tehran.
However, Iranian officials reportedly stressed that the Strait of Hormuz would not fully reopen until the United States fulfills commitments associated with the earlier June agreement.
The possibility of even a partial reopening has helped ease some concerns surrounding global crude supply.
Strait of Hormuz Remains Critical for Global Oil
The Strait of Hormuz is one of the world’s most important energy transportation routes.
Before the conflict began in late February, roughly 20% of global oil and liquefied natural gas supplies passed through the narrow waterway.
Traffic has since fallen dramatically as shipping companies have avoided the route due to the risk of attacks on commercial vessels.
Preliminary Kpler data cited by CNBC showed that only five commodity vessels traveled through the strait on Tuesday.
That was well below the recent 10-day average of approximately 15 ships.
Return of Oil Flows Could Pressure Crude Prices
The possibility of more commercial vessels returning to the Strait of Hormuz has weighed on oil prices.
If shipping conditions improve, global oil and LNG supplies could begin moving more freely, reducing fears of shortages.
However, analysts warn that a diplomatic agreement may not immediately return the market to conditions seen before the conflict.
Vital Knowledge analysts suggested that geopolitical risk is likely to remain permanently reflected in crude prices because renewed hostilities could still occur.
Analysts Warn Normal Oil Flows May Take Time
ING analysts also cautioned that an agreement between Iran and Oman would not automatically result in normal energy traffic through the Strait of Hormuz.
According to the analysts, additional steps from Washington would likely be necessary.
These could include easing restrictions on Iranian ports and reducing some U.S. sanctions before oil flows can fully normalize.
As a result, traders may continue to price a geopolitical risk premium into crude even if diplomatic negotiations continue to improve.
U.S. Shifts Focus Toward Economic Pressure
The latest diplomatic developments came shortly after Washington introduced tougher economic sanctions against Tehran.
The move suggests that the United States may currently prefer financial and economic pressure over renewed military action.
That shift has contributed to expectations that the risk of an immediate escalation could be declining.
However, sanctions could still restrict Iranian energy exports and limit how quickly oil supply conditions improve.
Oil Market Focus Remains on Middle East Diplomacy
Oil prices are likely to remain highly sensitive to developments involving the United States, Iran, Oman and Pakistan.
A lasting ceasefire and broader reopening of the Strait of Hormuz could reduce supply concerns and place additional downward pressure on crude prices.
At the same time, continued sanctions and the risk of renewed conflict mean that uncertainty remains elevated.
For now, traders will closely monitor diplomatic negotiations and shipping activity through the Strait of Hormuz for clearer signs of whether global energy flows are beginning to normalize.
