Global oil prices declined for a second consecutive session on Wednesday as renewed expectations of diplomatic engagement between the United States and Iran softened fears of prolonged supply disruption from the Middle East, even as physical constraints in the region persist.
Brent crude fell 0.2 per cent to $94.63 per barrel, extending a 4.6 per cent drop in the previous session, while U.S. West Texas Intermediate (WTI) declined 0.8 per cent to $90.58, following a sharper 7.9 per cent slide earlier.
At the centre of the volatility is the ongoing disruption to the Strait of Hormuz, a critical artery for global oil flows linking Gulf producers to key markets in Asia and Europe. The waterway has remained largely constrained by conflict, with vessel traffic operating at a fraction of pre-war levels, raising concerns about sustained supply tightness.
However, sentiment shifted after Donald Trump signalled that negotiations with Tehran to end hostilities could resume within days, following a breakdown in talks over the weekend. Market participants have increasingly responded to diplomatic signals, with each indication of renewed dialogue triggering downward pressure on prices.
Analysts say the evolving pricing dynamic indicates a shift in market psychology. “The trajectory of oil prices will likely hinge less on battlefield developments and more on diplomatic momentum. Each signal of renewed dialogue has been met with price declines, suggesting that traders are systematically unwinding the ‘war premium’ embedded into crude earlier this month,” said Priyanka Sachdeva, senior market analyst at Phillip Nova.
Despite the optimism, supply realities remain complex. The United States has imposed a naval blockade on Iranian oil exports, effectively halting maritime trade from the country, while also intercepting vessels attempting to leave its ports. These actions, combined with uncertainty over transit through the Strait of Hormuz, continue to fragment global supply chains.
Refiners, particularly in Europe, are already adjusting. Demand for alternative crude sources has risen, pushing premiums for non-Middle Eastern supply to record levels. A cargo of WTI Midland destined for Rotterdam recently traded at a $22.80 premium above benchmark European prices, underscoring the scramble for secure supply.
Further tightening risks loom as Washington signals a stricter sanctions stance. U.S. officials have indicated that a temporary waiver on Iranian oil shipments will not be renewed, while similar flexibility on Russian oil has already lapsed. This dual policy shift could remove additional barrels from the global market, counteracting any easing driven by diplomacy.
Attention is now turning to U.S. inventory data, with the Energy Information Administration expected to release official figures later in the day. Preliminary estimates suggest crude stockpiles have risen for a third consecutive week, while gasoline and distillate inventories may have declined; an indication of mixed demand signals in the world’s largest oil consumer.
