Oil prices fell on Tuesday even as a major winter storm hit oil production and affected refineries on the U.S. Gulf Coast.
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Oil prices fell on Thursday after Washington and the Iranian government agreed to hold talks in Oman on Friday, despite continuing disagreements over the scope of the talks.
U.S. crude oil fell more than 2% to $63.8 per barrel in Asian trading (Wednesday 11:34 p.m. ET). Brent crude oil, the global benchmark, also fell 2.04% to $68.04 per barrel.
Iran is seeking to focus the talks on its longstanding nuclear conflict with the West, but the United States also wants the country’s ballistic missile program, alleged support for militant groups across the Middle East and human rights situation at home to be on the agenda.
On Wednesday, US President Donald Trump said Iran’s Supreme Leader Ayatollah Khamenei was “very concerned” and oil prices rose about 3%.
Oil prices fall after US-Iran talks announced
President Trump warned last month that he could order an attack on Iran if it did not agree to a deal over its nuclear program. He also threatened to intervene in support of protesters who are speaking out against the Islamic Republic.
Analysts warned that markets were over-interpreting diplomatic signals and could quickly reverse.
“Messages about the Iran talks can be difficult to filter, and while they may lead to de-escalation, they may just be a tactical distraction ahead of military action,” said Saul Kavonic, head of energy research at MST Marquee, who expects the oil market to “soar” as sentiment around the Iran talks evolves and the actual outcome becomes clearer.
He added that despite the decline in prices, the potential risks remain high. “After all, the significant accumulation of military assets in the region by the United States and its allies suggests that an attack is likely, and oil prices are accumulating a premium to reflect that, at least in part.”
Other analysts echoed the fragile nature of the diplomatic thaw and the asymmetric risks to oil supplies if tensions rise again.
“Oil markets continue to react to the content of potential talks between the United States and Iran, reflecting the deep mistrust each side has in the other,” said Andy Lipow, president of Lipow Oil Associates.
Lipow said he does not expect the United States to directly target Iran’s oil infrastructure, but said the risk of escalation could still come from Iran. “Iran could threaten tankers transiting the Strait of Hormuz to stop loading, or in a worst-case scenario, attack tankers to shut down the waterway, causing oil prices to rise significantly.”
The Strait of Hormuz between Oman and Iran is a critical strait through which about one-fifth of the world’s oil production flows each day, according to the U.S. Energy Information Administration.
It is an important waterway linking Middle East oil producers to major markets around the world.
Citi analysts warned that upward pressure remains in the market.
“Oil prices have moderated as the near-term risk premium has been eased by talks on future US-Iran negotiations, but we and market participants remain concerned about upside risks,” Citi said, pointing to uncertainties surrounding US actions against Iran and India’s purchase of Russian crude as the main factors.
Citi noted that market positioning still reflects supply concerns, with oil for short-term delivery trading at a premium compared to later months, and distorted call option pricing indicating traders are still paying for protection against higher prices.
