Oil prices fluctuated as traders evaluated the potential for a peace agreement to resolve the ongoing conflict between the United States and Iran. West Texas Intermediate (WTI) crude was trading around $96 per barrel. Pakistan’s army chief, viewed as a key mediator between Washington and Tehran, arrived in Tehran amid indications of progress in negotiations aimed at ending the war and reopening the crucial Strait of Hormuz for energy traffic.
Iran reported that a recent US proposal had narrowed the divide between the two sides. However, remarks from Iran’s supreme leader regarding the maintenance of Tehran’s uranium stockpile, along with disagreements over tolls in the Strait of Hormuz, complicated the prospects for a significant breakthrough. Additionally, the United Arab Emirates has intensified efforts to help conclude the conflict in recent days.
“Near term, oil futures seem to be pricing in some sort of an agreement as WTI prices pull back below $100 per barrel,” stated Dennis Kissler, senior vice president for trading at BOK Financial Securities Inc. “Still, traders are becoming more desensitized to the ongoing negotiation headlines.”
Mixed messages on critical issues left uncertainty about the likelihood of a deal, particularly following renewed threats of escalation in recent days. This has created volatility in oil prices as traders try to estimate when shipments of oil and liquefied natural gas through the Strait of Hormuz might fully resume. The ongoing war and supply disruptions have led to a significant drawdown in global crude oil and product stockpiles, according to the Goldman Sachs Group Inc.
“Should no agreement emerge between the parties to the conflict, and should passage through the Strait of Hormuz remain severely restricted for the time being, stock levels will come under increased scrutiny,” analysts Barbara Lambrecht and Carsten Fritsch from Commerzbank AG noted in a report.
The International Energy Agency has expressed its readiness to release additional stockpiles if necessary, following an initial release in March, according to Executive Director Fatih Birol.
In the meantime, US consumers are feeling the effects of energy-related inflation, with gasoline prices reported at $4.55 per gallon as of Thursday, marking the highest level ahead of Memorial Day in four years. Consumer sentiment has dropped to record lows as long-term inflation expectations have worsened.
