Oil settles 5% lower as investors await updates on US-Iran peace deal talks

[LONDON] Oil prices fell 5 per cent to their lowest level in over a month on Wednesday (May 27) as investors awaited updates on a framework of a US-Iran deal to end their conflict and reopen the Strait of Hormuz. Brent crude futures settled down US$5.29, or 5.31 per cent, at US$94.29 a barrel, while US West Texas Intermediate crude lost US$5.21, or 5.55 per cent, to US$88.68. Both benchmarks touched their lowest in a month earlier in the session and settled at their lowest since Apr 17. The losses more than erased Brent's gains from Tuesday. US Secretary of State Marco Rubio said that there has been some progress in negotiations with Iran towards a deal. However, US President Donald Trump said that the US and Iran still have issues to resolve in peace talks, while Iran's Fars News has said unresolved issues remain. Washington also dismissed an Iranian state television report of a framework deal to restore shipping through the Strait of Hormuz within a month and to lift a US naval blockade on Iranian ships. The US will withdraw military forces from the vicinity of Iran and lift its naval blockade, Iranian state TV said, adding that the management of ship traffic through the Strait of Hormuz will be handled by Iran in cooperation with Oman. "A leader from the Iranian military stated that the possibility of returning to war is low, which has many traders believing a peace deal is getting closer ... It seems the extremely tight global supplies that had been factored into crude are beginning to lessen," said Dennis Kissler, senior vice-president of trading at BOK Financial. Traffic through the Strait of Hormuz also continued with an oil products tanker operated by Chinese shipping group Cosco in the process of crossing the chokepoint on Wednesday, after two crude tankers sailed in the past day, although oil traffic overall was still limited, shipping data showed. "The increase in shipping activity is reinforcing expectations that the critical waterway could gradually reopen, potentially restoring disrupted global energy flows and reducing near-term supply risk premiums," said Mark Schaefer, a director at brokerage Liquidity Energy. July Brent futures had risen 3.6 per cent in the previous session after the US carried out new strikes in Iran, hurting hopes that had risen over the weekend that Washington and Teheran would reach a peace deal. Israel ramped up bombing in Lebanon on Tuesday, further straining peace efforts. After an April ceasefire in the three-month-long conflict, both sides indicated they had made progress in talks towards reopening the strait. Iran's effective closure of the Strait of Hormuz has taken more than 14 million barrels per day of Middle East oil supply offline, according to the International Energy Agency. In a sign of demand weakening, India's two largest airlines sharply cut planned domestic flights for June and July, sources familiar with the matter said. In the US,crude oil inventories fell by 2.8 million barrels last week, the sixth straight week of declines, according to market sources citing American Petroleum Institute data. Petrol inventories fell by 3.2 million barrels, while distillate inventories rose by 1.1 million barrels compared with a week earlier, the sources said. REUTERS