Oil prices have dropped for the third day in a row as market participants assess the likelihood of a peace agreement between the United States and Iran, which could lead to the resumption of shipping activities in the Strait of Hormuz.
WTI crude fell by 1.9%, settling at $96.35 per barrel, marking its lowest level in nearly two weeks. July Brent crude declined by 2.3%, settling at $102.58 per barrel.
Both the US and Iran signaled on Thursday that progress has been made toward achieving a permanent ceasefire and reopening the strategic waterway. In post-settlement trading, oil prices partially recovered losses after Iran's president stated that the country "will not back down" in the negotiations.
In recent days, the crude futures market has shown heightened sensitivity to headlines regarding the peace talks, with traders wary of being caught off guard by a sudden agreement.
"Although negotiations are taking longer and crude inventories are becoming tighter, the longer the ceasefire holds without escalation, the more the market leans toward believing a diplomatic solution will ultimately prevail," commented Rebecca Babin, senior energy trader at CIBC Private Wealth Management.
Despite the bearish sentiment on Thursday, current oil prices remain nearly 40% higher than pre-conflict levels.
A survey conducted by institutional research indicates that the vast majority of market participants expect crude futures to continue carrying a certain risk premium for years to come, driven by structural changes resulting from the conflict.
One such potential structural shift is that Iran is in discussions with Oman to establish a permanent toll collection mechanism, aimed at further institutionalizing control over shipping in the strait.
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