Oil prices fell more than $1 a barrel on Thursday after the US and Iran agreed to hold talks in Oman on Friday, easing concerns that a potential military conflict between them could disrupt supplies from the key Middle East producing region.
Brent crude futures fell $1.31, or 1.89 per cent, to $68.15 per barrel at 0714 GMT. US West Texas Intermediate crude prices fell $1.24, or 1.90 per cent, to trade at $63.90.
Oil prices surged about 3 per cent on Wednesday after a media report suggested the planned talks between the US and Iran on Friday could collapse. However, later in the day, officials from both sides said talks would go ahead on Friday though the topics up for discussion have not been settled.
“The oil price has erased part of the geopolitical risk premium on the news of US-Iran talks in Oman on Friday,” said Mukesh Sahdev, CEO of energy consultancy XAnalysts.
The two sides remain far apart on what the talks should include, according to officials from both sides. Iran is open to discussing its nuclear programme, including uranium enrichment, with Western countries, while the US also wants to include Iran’s ballistic missiles, its support for armed proxy groups around the Middle East and its treatment of its own people.
“It is likely that these talks will surface new differences and the risk premium will rise again soon,” Sahdev said.
Despite the upcoming talks, there are concerns US President Donald Trump will still carry out his threats to strike Iran, the fourth-largest producer among the Organization of the Petroleum Exporting Countries, potentially risking a wider confrontation in the oil-rich region.
In addition to the possible disruption of Iranian production in the event of a conflict, there are concerns exports from other Gulf producers could be affected.
About a fifth of the world’s total oil consumption passes through the Strait of Hormuz which lies between Oman and Iran. Other OPEC members, Saudi Arabia, the United Arab Emirates, Kuwait and Iraq, export most of their crude via the strait, as does Iran.
Strength in the US dollar and volatility in precious metals also weighed on commodities and risk sentiment more broadly on Thursday, analysts said.
Meanwhile, data from the Energy Information Administration on Wednesday showed oil inventories declined last week in the US, the world’s biggest crude producer and consumer, after a winter storm gripped large swathes of the country.
