Oil prices declined for a third consecutive day as the market reacted to conflicting signals over the potential for a diplomatic breakthrough between the United States and Iran. The key question on traders’ minds is whether the two nations can secure a nuclear deal and avert a military confrontation.
West Texas Intermediate, the US benchmark, fell 1% to settle below $66 a barrel, while Brent crude closed under $71. The drop followed a news report suggesting Iran is ready to reach a deal as soon as possible. However, the market’s reaction was tempered by widespread skepticism that Iran is truly prepared to negotiate in good faith.
These losses were limited by clear signs that regional tensions are far from cooling off. The United States deployed a dozen stealth fighter jets to Israel, adding to a significant military build-up in the region. A former US president also commented on social media, stating that no deal would be “very bad” for Iran and dismissing concerns about the potential difficulties of an extended military campaign.
One potential retaliatory move by Iran, a major OPEC member, would be an attempt to block the Strait of Hormuz. This narrow waterway is a critical global chokepoint, handling about a quarter of the world’s seaborne oil trade and a significant amount of liquefied natural gas.
Official negotiations on a nuclear deal are scheduled to resume later this week in Geneva. The talks will involve senior US envoys and the Iranian foreign minister.
Fears of a US military strike on Iran have been a key factor supporting oil prices this year, overshadowing predictions of a global supply glut. These geopolitical risks, along with some earlier supply disruptions, have eased concerns that prices would be weighed down by oversupply. A prediction market currently indicates traders see about a 60% chance of a US strike on Iran before the end of March.
A commodities analyst noted that while prices are strongly influenced by Middle East tensions, the associated risk premium tends to fade if no actual supply disruptions occur.
The risk of a closure in the Strait of Hormuz is already having a tangible impact on shipping. Rates for supertankers have climbed sharply this month, with the cost to transport crude from Saudi Arabia to China jumping by about 60%.
