Oil prices fell more than 1% on Tuesday, paring the previous session’s sharp gains, as Iran reviewed a proposed agreement with the United States to halt the war between the two countries, Iran’s Mehr News reported.
U.S. President Donald Trump said on Monday that negotiations with Iran were continuing and there would be a deal to extend the ceasefire and reopen the Strait of Hormuz over the next week.
Iran has not yet responded to a proposed final text of the temporary deal, Mehr cited a source as saying.
Brent crude futures were down $1.13, or 1.2%, to $93.85 a barrel at 1130 GMT, while U.S. West Texas Intermediate fell $1.09, or 1.2%, to $91.07 a barrel.
Both benchmarks rose more than 5% on Monday, having fallen more than 16% in May on hopes of a peace deal.
EYES ON HORMUZ AND STOCKPILES
Despite the developments on talks, “oil flows through the Strait (of Hormuz) remain restricted,” due to the conflict in the region, said UBS analyst Giovanni Staunovo.
Global oil inventories could hit critical or historically low levels just ahead of the peak summer demand period if stock draws continue at their current pace, the head of the International Energy Agency’s oil industry and markets division said on Tuesday.
An executive from Abu Dhabi’s state oil company also said on Tuesday that August could mark a tipping point for much higher oil prices if demand picks up and the Iran war supply crisis persists.
“The market is currently focused on whether there’s any concrete progress or setbacks in U.S.-Iran negotiations, the tone and substance of statements from both sides (particularly Iran’s threats regarding the Strait of Hormuz), and actual physical tanker movements through the waterway,” said Tim Waterer, chief market analyst at KCM Trade.
The status of negotiations will determine whether the current risk premium remains embedded in oil prices or starts to unwind, Waterer added.
Iran has effectively halted most non-Iranian shipping in and out of the Gulf since the war began, choking off about a fifth of global oil and liquefied natural gas flows and driving prices up by 50% or more. The U.S. has also maintained a blockade on Iranian ports.
Lebanon on Monday announced a partial ceasefire between Hezbollah and Israel, a limited de-escalation in a conflict that has fuelled the broader war with Iran.
According to a preliminary Reuters poll, U.S. crude stockpiles are expected to have fallen by about 3.6 million barrels in the week ended May 29, extending the prior week’s draw, while distillates and gasoline inventories are also seen lower.
Meanwhile, Russia pounded cities across Ukraine with hundreds of drones and dozens of missiles early on Tuesday in attacks that authorities said killed 18 people and wounded more than 100.