Oil prices fell amid optimism that a peace agreement could be reached between the United States and Iran, despite earlier comments from the U.S. President suggesting significant differences remain in the talks.
West Texas Intermediate (WTI) crude dropped nearly 6%, settling below $89 per barrel. The U.S. President stated he was "not satisfied" with the progress of negotiations aimed at ending the nearly three-month-long conflict. Meanwhile, the White House denied a report from Iranian state television about a draft interim peace agreement.
Although the President's remarks tempered expectations of an imminent breakthrough, traders continued to focus on the prospect of ending the war and reopening the Strait of Hormuz. A peace deal is expected to release a significant volume of crude into the currently tight oil market.
"The market appears to be seeing some unwinding of positions, which accelerated the price decline. More importantly, there's a strong reluctance to buy the dip at the moment," said a senior energy trader at CIBC Private Wealth Group.
The trader noted that market participants have become increasingly cautious about holding long crude positions until there is concrete news of progress toward ending the conflict. Data from Kpler showed that trend-following commodity trading advisors reduced their net long position in WTI from 82% to 55%, amplifying the downward move.
However, key disagreements remain between the U.S. and Iran in the negotiations, including the status of $24 billion in frozen Iranian assets and Iran's reluctance to allow free passage of vessels through the Strait of Hormuz. During a cabinet meeting, the U.S. President stated that the strait should not be controlled by any single nation.
Currently, the Strait of Hormuz remains largely closed due to blockades by both sides. On Wednesday, commercial shipping activity through the strait was significantly reduced, with only a few vessels transiting, most of which were linked to Iran, following the departure of two supertankers the previous day.
July WTI crude fell 5.6%, settling at $88.68 per barrel. July Brent crude futures declined 5.3%, settling at $94.29 per barrel.
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