Easing supply concerns sent oil prices tumbling nearly 2%
5 February 11:16
Oil prices fell by more than $1 per barrel on Thursday, February 5, following reports of an agreement between the US and Iran to hold talks in Oman. This eased fears of a possible military conflict that could disrupt supplies from the key oil-producing region of the Middle East.
This was reported by "Komersant Ukrainian", citing Reuters.
Oil fell by more than $1
Brent crude futures fell $1.31, or 1.89%, to $68.15 per barrel. US West Texas Intermediate crude fell $1.24, or 1.90%, to $63.90 per barrel.
On Wednesday, oil prices rose by about 3% amid media reports of a possible breakdown in the talks between the US and Iran scheduled for Friday. However, representatives of both sides later confirmed that the talks would still take place, although the list of issues to be discussed has not yet been agreed upon.
Risks for the oil market
Despite the agreement on negotiations, the US and Iran still have significant differences regarding their content. According to official representatives of both sides, Tehran is ready to discuss its nuclear program, in particular the issue of uranium enrichment, while Washington insists on a broader agenda. The US wants to include Iran’s missile program, support for armed proxy groups in the Middle East, and human rights issues within the country in the negotiations.
Analysts do not rule out that the talks may only exacerbate the contradictions.
“It is quite likely that these talks will reveal new differences, and the geopolitical risk premium will start to rise again,” said Mukesh Sahdev, CEO of energy consulting firm XAnalysts.
There are also concerns in the market that US President Donald Trump may carry out his threats to strike Iran, the fourth largest oil producer among OPEC countries. Such a scenario creates the risk of a wider confrontation in one of the world’s key oil-producing regions.
In addition to a potential reduction in production in Iran itself, investors are wary of possible disruptions to exports from other Persian Gulf countries. About 20% of global oil consumption passes through the Strait of Hormuz, located between Iran and Oman. Saudi Arabia, the UAE, Kuwait, Iraq, and Iran export their raw materials via this route.
Additional pressure on the market on Thursday came from the strengthening of the US dollar and increased volatility in the precious metals market, which worsened the overall sentiment towards commodity assets.
At the same time, data from the US Energy Information Administration released on Wednesday showed a decline in oil reserves in the country after a winter storm that affected a significant part of the US, the world’s largest producer and consumer of crude oil.
