Oil slides 2.5% as US-Iran talks ease Hormuz supply fears

Brent crude slipped 64 cents to $98.72 a barrel while WTI fell $2.43 to $96.65 Tuesday as possible U.S.-Iran talks eased fears over the Strait of Hormuz blockade.

"The move lower ignores the loss of physical barrels of oil that are not moving," said Tamas Varga, analyst at PVM Oil Associates.

Both benchmarks had risen in the prior session — Brent climbing more than 4 percent and WTI nearly 3 percent — after the U.S. military began a blockade of Iran's ports. Oil prices rose 50 percent last month, a record. The International Energy Agency said attacks on energy infrastructure and Iran's effective closure of the Strait of Hormuz led to the largest oil supply disruption in history, with 10.1 million barrels per day lost in March.

"Resuming flows through the Strait of Hormuz remains the single most important variable in easing the pressure on energy supplies, prices and the global economy," the IEA said in its monthly report. Negotiating teams from the U.S. and Iran could return to Islamabad later this week, five sources told Reuters, while a U.S. official said there was continued engagement on reaching an agreement.

The U.S. military on Monday said its blockade would extend east to the Gulf of Oman and the Arabian Sea, with ship-tracking data showing two vessels turned around in the strait as the blockade started. NATO allies including Britain and France refrained from joining the blockade, calling instead for the waterway to reopen. Iran responded by threatening to target ports in nations bordering the Gulf, following the collapse of weekend talks in Islamabad aimed at resolving the crisis over the strait, which in normal times carries about a fifth of global oil and liquefied natural gas supplies.

Three Iran-linked tankers entered the Gulf and were allowed to pass since their destinations were not Iranian ports, shipping data showed. Pakistani Prime Minister Shehbaz Sharif said efforts were still underway to reach a resolution.

10.1 Million bpd Lost in March

"In case talks between the adversaries fail to bear fruit, even revisiting the March highs cannot be ruled out as the decline in global oil inventories might spill into the third quarter and beyond," Varga added.

The IEA sharply cut its forecasts for global oil supply and demand growth, with demand expected to fall by 80,000 barrels per day in 2026 and supply expected to decline by 1.5 million barrels per day in 2026. Russian oil product exports from the Black Sea port of Tuapse for April were revised up about 60 percent to 1.27 million metric tons from 794,000 tons in the preliminary plan, according to two traders and Reuters calculations. Rosneft has been diverting supplies to the refinery from the Black Sea port of Novorossiysk after the terminal was heavily damaged.

In the U.S., truck fleets on average spent $5.52 per gallon on diesel as of Monday, surpassing the prior all-time high of $5.50 set in June 2022 after Russia invaded Ukraine. Trucking is a barometer of the U.S. economy and is dominated by small businesses, meaning elevated fuel costs are already feeding through to consumer prices across the country.

The last time oil prices surged this sharply was in March 2022 following Russia's invasion of Ukraine, when Brent briefly touched $139 a barrel before retreating. The current disruption — driven by the closure of a chokepoint that handles roughly 20 percent of global oil trade — has proven more sustained, with the IEA warning that global inventories could continue to draw down into the third quarter if the blockade persists. If talks fail, Varga said, revisiting the March highs cannot be ruled out.

This article is for informational purposes only and does not constitute investment advice.