Nicole Rao
NEW YORK, May 20 (Reuters) – Oil prices fell about 6% on Wednesday after U.S. President Donald Trump said talks with Iran were in the final stages, but investors remained cautious about the outcome of peace talks amid ongoing supply disruptions in the Middle East.
Brent crude oil futures fell $6.26, or 5.63%, to $105.02 a barrel; U.S. West Texas Intermediate crude oil futures fell $5.89, or 5.66%, to $98.26 a barrel.
Trump said talks with Iran were in the final stages but warned further attacks were possible unless Iran agreed to a deal.
Iranian Foreign Ministry spokesman Esmail Baghaei said Iran was ready to work with other coastal countries to develop a safe shipping agreement, but did not provide further details.
Despite signs of progress, some market participants and analysts remain cautious about the outcome of the negotiations and global supply tightness that could persist even if the U.S. and Iran reach a deal.
“You have to take all these statements with a grain of salt these days, but the market has been quick to reward and price in hope that a resolution will be found,” said John Kilduff, partner at Again Capital.
Citi analysts said on Tuesday they expected Brent crude prices to rise to $120 a barrel in the near term, saying the oil market was underestimating the risk of longer-term supply disruptions, while Wood Mackenzie estimated Brent crude prices could approach $200 if the Strait of Hormuz is largely closed by the end of the year.
Likewise, PVM analysts said global oil inventories could reach extremely low levels. “However, as has been observed recently, market participants are relatively indifferent (or complacent) to the possible consequences of the conflict,” PVM said.
The Brent crude contract for next month’s delivery trades at a premium of about $20 a barrel over six-month contracts, well below last month’s high above $35, a premium that reflects traders’ view of current supply constraints.
Russian Deputy Prime Minister Alexander Novak said on Wednesday that some countries are lifting sanctions on Russian oil because global markets cannot function without Russia, the official TASS news agency reported.
Three supertankers carrying 6 million barrels of Middle Eastern crude crossed the Strait of Hormuz on Wednesday to transport oil to Asian markets after waiting in the Gulf for more than two months. The number of ships crossing the strait remains well below the pre-war level of around 130 ships per day.
Sultan Al Jaber, chief executive of Emirates ADNOC, said on Wednesday it would take at least four months to return to 80% of pre-conflict traffic.
