SINGAPORE, Aug 27 — Oil prices fell more than US$1 on Thursday, extending a streak of losses, on expectations that talks between Iran and Qatar might open the Strait of Hormuz and reduce supply disruptions from the war in the Middle East.
Brent crude futures were down US$1.07, or 1.2 per cent, to US$86.77 a barrel at 0645 GMT, in line for a fourth day of declines. West Texas Intermediate crude futures fell US$1.13, or 1.4 per cent, to US$81.10, in line for a fifth day of losses.
On Wednesday, a senior Iranian source said that Iran and Oman are working to finalise details of an agreement to control the Strait of Hormuz, after Iran's Revolutionary Guards said the two countries had agreed on how to share the waterway that connects major Gulf oil producers to markets and its revenues.
The Srait carried oil and LNG shipments equal to about a fifth of global consumption of the fuels before the United States (US)-Israeli war on Iran started on February 28. Ship-tracking data have revealed that since Iran worked to shut the waterway in response, oil flows have dropped to about one-quarter of their pre-war level.
"Crude oil edged lower as the prospect of the Strait of Hormuz reopening improved amid ongoing talks," said ANZ senior commodity strategist Daniel Hynes in a note on Thursday, though he cautioned that "concerns over shortages in the oil market persist."
Qatar's Prime Minister Mohammed bin Abdulrahman bin Jassim Al Thani will head to Iran on Thursday to relaunch diplomatic talks to end the conflict, which is nearly six months old.
The US has halted its attacks on Iran for about a month and is seeking to impose greater economic pressure on Iran, which has raised investors' expectations for an easing of the Gulf supply disruptions.
Still, the countries are far apart on their demands to end the fighting, and Iran has struck shipping in the Gulf and strait to impose its control on the waterway.
Iranian officials have also said the Strait would not open unless the US met Tehran's conditions under an interim ceasefire agreement that was struck in June and later unravelled.
"At the heart of the dispute remains Iran's nuclear programme and that is unlikely to be resolved quickly...Iran also understands the importance of its geographical position and the leverage that the Strait of Hormuz provides, so the risk of prolonged uncertainty remains.
"As long as the risk to supply remains, some degree of war premium can continue to be priced into oil," said Phillip Nova market insights head Priyanka Sachdeva.
ANZ's Hynes also pointed to the impact the Middle East war and the Russia-Ukraine war are having on the diesel market. Middle East refineries have been damaged in that conflict, and Ukraine has hit several Russian refineries, cutting exports from what was a major global diesel supplier.
The curtailment in worldwide diesel output is showing up in inventory data. On Wednesday, the US Energy Information Administration reported that distillate stockpiles, including diesel and heating oil, dropped by 2.2 million barrels in the week to August 21 to 103.4 million barrels.
Hynes said this is the lowest distillate stockpile level ever recorded for this time of year.
