Oil Falls 1% as Investors Focus on Hormuz Flows After Peace Talks

Oil prices declined more than 1% on Tuesday, extending previous losses as investors focused on the Strait of Hormuz following US-Iran peace talks. Brent crude futures fell 1.4% to $76.81 a barrel, while US West Texas Intermediate dropped 1.2% to $72.99.

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The gradual increase in oil flows through the Strait of Hormuz continues to weigh on the market.

Prices had already fallen over 3% on Monday after the United States granted Iran a 60-day sanctions waiver and a lull in hostilities was reported in Lebanon as part of a broader agreement. "The gradual increase in oil flows through the Strait of Hormuz continues to weigh on the market," ING analysts noted.

Ship-tracking data showed two crude tankers carrying nearly 2 million barrels of oil sailed through the Strait of Hormuz on Monday, indicating increased traffic after lower flows on Sunday due to passage concerns. "Transits over recent days look to have risen sharply, (which) the market will treat as a proxy for both physical oil, perhaps paper oil, and diplomatic progress," said Neil Crosby, head of research at Sparta Commodities.

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Transits over recent days look to have risen sharply, (which) the market will treat as a proxy for both physical oil, perhaps paper oil, and diplomatic progress.

Despite the signs of restored flows, market sentiment remains cautious. "There remains a prevailing dose of market skepticism, rooted in deep-seated mistrust between Washington and Tehran, suggesting that any return to pre-war oil prices is likely to be delayed rather than immediate," stated Tim Waterer, chief market analyst at KCM Trade.

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It feels like we will be stuck in this bearish risk-off/optimistic mood until such time as something changes.

In separate news, analysts polled by Reuters anticipate a fall in US crude and distillate inventories last week. Government data released Monday revealed that US crude stocks in the Strategic Petroleum Reserve reached their lowest level since June 1983, standing at 331.2 million barrels, reflecting tighter supplies amid the US-Iran conflict.

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There remains a prevailing dose of market skepticism, rooted in deep-seated mistrust between Washington and Tehran, suggesting that any return to pre-war oil prices is likely to be delayed rather than immediate.