Oil prices were down sharply on Wednesday, sliding to their lowest level in the past month and a half, after reports that the Strait of Hormuz would be reopened “within a month”.
Iranian state TV reported that Tehran has received a draft of an initial unofficial framework for an agreement with Washington, under which commercial shipping in the vital waterway would be restored to pre-war levels.
Additionally, the US would withdraw its military forces from Iran's vicinity and lift its naval blockade on Iranian ports.
Brent, the benchmark for two thirds of the world's oil, was down 3.83 per cent to $95.77 a barrel at 5.19pm UAE time. West Texas Intermediate, the gauge that tracks US crude, fell 4.75 per cent to $88.57 per barrel.
Earlier in the session, Brent and WTI were down by more than 5 per cent and 6 per cent, respectively. Since the start of the war on February 28, both benchmarks have soared by more than 30 per cent.
Despite the dip in global oil prices, petroleum products have remained elevated, as supply continues to be constrained at the Strait of Hormuz, which before the blockade was the main artery for about a fifth of the world's energy exports, affecting net energy importers especially.
Oil prices are expected to remain volatile amid the uncertainty over the endgame of the war. Unexpected aggression, such as US military strikes in southern Iran on Wednesday and Tehran's subsequent threat to retaliate, is further complicating market sentiment.
That has divided analysts, as the market remains caught between fears of supply disruption and hopes of diplomatic progress, making oil prices sensitive to new twists in continuing negotiations.
Crude remains highly sensitive to each headline surrounding US-Iran negotiations and a similar path is expected while the world awaits the outcome of the nearly three-month conflict, analysts at 1Konto Market Brief said.
“The market is trading around a fragile US-Iran de-escalation path … [and] oil remains the transmission channel … depending on whether markets focused on diplomacy or fresh military action, that volatility matters for foreign exchange, rates, shipping and corporate margins,” the brief said.
“A durable reopening of Hormuz would ease inflation pressure but a failed deal would likely reprice oil, the dollar and long-end yields higher again.”
Markets rally
The potential peace deal has also rubbed off on global stock markets, which edged higher on Wednesday, as falling oil prices and excitement over artificial intelligence shares boosted investor confidence.
US stock futures indicated a fifth straight day of gains, with the benchmark S&P 500 and tech-rich Nasdaq Composite set to open higher after another rally in chipmaker stocks pushed Wall Street indexes to new highs on Tuesday.
In Europe, markets also edged closer to breaking records. Markets in London, Frankfurt and Paris were all poised to close higher.
Stock markets in Asia, however, mostly retreated. The Shanghai Composite and Hong Kong's Hang Seng index settled more than 1 per cent lower, as the AI rush divided market sentiment. Tokyo's Nikkei was flat.
South Korea's Kospi, however, closed 2.25 per cent higher to a record level, anchored by SK Hynix crossing the $1 trillion market-value mark, joining US chipmaker Micron Technology, which achieved it on Tuesday, and domestic peer Samsung Electronics, which hit the milestone earlier in the month.
Gold, meanwhile, posted a decline, as investors digested the latest developments from the Middle East. The precious metal, widely regarded as a safe-haven asset, fell nearly 2 per cent to $4,414.59 an ounce.
