Oil prices slide on US-Iran peace talk hopes despite Strait of Hormuz closure

Oil prices fell for a second straight day on Wednesday, pulled lower by a shift in market sentiment toward the possibility of renewed negotiations between Washington and Tehran. Brent crude dropped 52 cents to settle at $94.27 a barrel—a decline of 0.55 percent—while West Texas Intermediate crude lost $1.04 to close at $90.24, or 1.1 percent lower. These moves came after steeper losses the day before, when Brent had fallen 4.6 percent and WTI had dropped 7.9 percent. The selling reflected something counterintuitive: traders were betting that diplomatic progress might actually happen.

The reason for this optimism was straightforward. On Tuesday, President Donald Trump announced that talks aimed at ending the conflict between the United States, Israel, and Iran could resume within the next two days, possibly in Pakistan. This statement arrived after negotiations had collapsed over the weekend, prompting Washington to impose a blockade on Iranian ports. The mere prospect of talks resuming was enough to shift market psychology. If diplomacy succeeded, the thinking went, the Strait of Hormuz—the critical waterway through which roughly 130 vessels per day normally transit with crude and refined products bound for Asia and Europe—could reopen. That would unleash a flood of supply that has been bottled up by the closure.

But the reality on the ground told a different story. The Strait of Hormuz remained shut. A two-week ceasefire had been declared, yet transit through the waterway remained deeply uncertain. Traffic was running at only a fraction of normal levels, according to sources on Tuesday. That same day, a U.S. destroyer intercepted two oil tankers attempting to depart Iran, underscoring the physical constraints that continued to bind the market even as diplomatic signals grew warmer. The Schork Group, an energy analytics firm, captured the tension in a note to clients: while headlines spoke of possible talks and easing restrictions, the actual movement of oil remained fragmented. The market, they observed, was pricing in the possibility of disruption rather than a return to normal supply and demand.

Underlying this fragile optimism was a harder reality that could yet derail any gains. Two U.S. administration officials told Reuters on Tuesday that Washington would not renew a 30-day waiver on sanctions against Iranian oil at sea—a waiver set to expire that week. Additionally, a similar waiver on sanctions against Russian oil had quietly been allowed to lapse over the weekend. These decisions meant that even if talks progressed, the legal and financial barriers to Iranian and Russian crude reaching global markets would remain in place, capping any supply relief.

Markets were also watching the calendar for fresh data. The Energy Information Administration was scheduled to release official U.S. crude oil inventory figures at 10:30 a.m. Eastern time on Wednesday. Analysts polled by Reuters expected crude stockpiles to have risen modestly the previous week, while distillate and gasoline inventories were forecast to have declined. But sources familiar with preliminary figures from the American Petroleum Institute reported on Tuesday that U.S. crude inventories had actually jumped for the third consecutive week—a sign that demand remained soft even as supply concerns dominated headlines. The disconnect between what markets feared and what the data was showing would likely shape trading in the hours ahead.