Oil prices fell sharply on Wednesday, with both major oil benchmarks dropping more than $2 a barrel as hopes grew that the Strait of Hormuz could partially reopen. Brent crude futures fell $2.73, or 3.08%, to $85.85 a barrel by 10:12 GMT on Wednesday. West Texas Intermediate (WTI) crude fell $2.21, or 2.68%, to $80.15 a barrel. Both Brent and WTI hit their lowest levels since August 10 earlier in the trading session.
Because both are major sources of energy, oil prices can also affect natural gas prices indirectly. If oil prices rise sharply, some industries may switch from natural gas to oil in areas where that is possible. That can increase demand for natural gas. For now, the key factor for oil markets is the Strait of Hormuz. If Iran and Oman reach a deal that allows more ships to pass safely, concerns about oil supply disruptions could ease further. But shipping through the Strait remains far below normal levels, so the oil market is still watching the talks closely.
That was far below the 10-day average of 15 vessels and also well below shipping levels seen before the war.
The market is now showing less fear of a long-lasting supply disruption, according to Ole Hansen, head of commodity strategy at Saxo Bank. Hansen said the market has moved toward expecting a partial reopening of the Strait, negotiated shipping arrangements and a lower risk of another military escalation, according to Reuters. A successful deal could remove some of the extra price increase caused by geopolitical fears, Hansen said. The US warned that countries continuing to do business with Tehran could face penalties, although Washington said it would not impose those penalties immediately.
The two countries also agreed to clear mines from the waterway, which could help make shipping through the Strait safer. The US is also continuing to put pressure on Iran. On Tuesday, Iran and Oman said they had discussed a joint temporary navigational corridor through the Strait of Hormuz. Only five commodity vessels passed through the Strait on Tuesday, according to preliminary data from ship-tracking company Kpler cited by Reuters. Washington expanded sanctions on Monday aimed at cutting off Iran’s economic lifeline.
