Oil prices steadied slightly after both major benchmarks fell nearly 6 per cent amid in early trading growing hopes of a ceasefire that could ease supply disruptions from the Middle East.
Brent, the benchmark for two-thirds of the world's oil, was down 3.12 per cent to $101.23 a barrel at 8.04pm UAE time, while US West Texas Intermediate, the gauge that tracks US crude, was trading 2.67 per cent lower at $89.88 per barrel.
US President Donald Trump on Tuesday said Iran wanted to make a deal and has agreed not to pursue a nuclear weapon. But while he said the two countries are “currently in negotiations”, Iran has denied being part of any talks. However, Iranian media on Wednesday evening reported that the country's leadership rejected the ceasefire proposals, ruling out a ceasefire, which pushed Brent above $100.
Mr Trump's earlier comments followed reports that the US has sent a 15-point plan to Iran aimed at ending the conflict.
On Monday, Mr Trump said he had held “productive conversations” with Tehran, and he postponed military strikes on Iranian power plants and energy infrastructure for five days.
Meanwhile, Iran has sent a letter to the International Maritime Organisation saying that “non-hostile” vessels can pass through the Strait of Hormuz in “co-ordination with Iranian authorities”.
“Oil prices continue to be buffeted by headlines from the region, and after Monday’s sharp fall, they picked up once again yesterday as uncertainty around any peace process returned,” said Daniel Richards, senior economist at Emirates NBD.
The reports of Mr Trump offering Iran a 15-point peace plan proposal have “boosted risk-on sentiment, with a sharp fall in oil prices”, he added.
Oil's drop on Wednesday came after weeks of soaring prices. Crude reached nearly $120 a barrel earlier this month as the US-Israeli war on Iran continues, leading to major disruptions to global energy supplies.
Analysts warned at the time that the destruction of energy infrastructure and continued disruption to supply could keep oil prices elevated.
On Wednesday, Kuwait International Airport suffered a drone attack on a fuel tank, in the latest example of strikes continuing across the region.
Ipek Ozkardeskaya, senior analyst at Swissquote bank said that while crude oil continues retracing below the $100 per barrel mark on war de-escalation hopes, optimism remains "fragile" as Iran is yet to respond to US’s efforts to ease tensions.
She is of the view that oil prices could "stabilise in the $80-$85 per barrel range" in the coming months if today’s crisis follows the path it did during the Gulf War, when Iraq invaded Kuwait in August 1990.
At the time, "oil prices surged from around $15 per barrel to nearly $40 in just two months, rattling global markets", she said. "But the stress was relatively short-lived. By the time coalition forces intervened and the war ended in February 1991, oil prices had already begun to moderate. Roughly one month later, volatility remained elevated; three to six months later, stabilisation had begun, with energy markets largely returning to pre-war levels; and after one year, markets had broadly resumed prior trends."
If today’s crisis follows a similar path, over a one-year horizon, oil could "potentially return to the $60-$70 per barrel range", Ms Ozkardeskaya said. "But there are many ‘ifs’ in the near term, making short-term direction highly uncertain."
Gulf producers have lost $15.1 billion in energy revenue since the war began, with at least $10.7 billion in cargo loads sitting in the Strait of Hormuz and unable to reach their destinations, according to the shipping analytics firm Kpler. The firm estimates Hormuz carries $1.2 billion worth of oil, gas and refined products on a normal day.
