Brent falls as peace hopes offset Middle East tensions and Russian supply risks

The front-month ICE Brent contract has decreased by $2.46/bbl on the day, to trade at $106.42/bbl at 09.00 GMT.

IMAGE: Getty Images

Upward pressure:

Brent has received support from escalating geopolitical tensions, following reports of a US strike on Iran's Qeshm Island. Citing a US official, Reuters reported that Washington carried out the strike on Monday.

Meanwhile, prospects for a diplomatic resolution remain uncertain. A senior Iranian official told Reuters that Tehran and Washington were still far from reaching an agreement to end the war, adding that Iran would not accept Washington's excessive demands.

The lack of progress in negotiations and continued uncertainty over the reopening of the Strait of Hormuz have further supported oil prices.

“The oil market is also wary of stop-and-go diplomatic efforts that haven’t delivered peace, with the two adversaries yet to agree on terms for fully reopening the Strait of Hormuz,” ANZ Bank’s senior commodity strategist Daniel Hynes said. 

Supply-side concerns have also contributed to the upward pressure. An oil refinery in Russia's Yaroslavl city was damaged in a Ukrainian drone attack, local governor Mikhail Evrayev said on Tuesday. Russia's Defence Ministry separately reported that it had intercepted 856 Ukrainian drones over the country's regions overnight, Reuters reported.

Downward pressure:

However, market hopes of progress in diplomatic efforts to end the US-Israeli war with Iran have weighed on Brent prices, with the prospect of a resolution raising expectations of a gradual stabilisation in Middle Eastern crude supplies.

Talks between Iranian and Qatari officials have fuelled optimism about a possible end to the conflict and the restoration of regional supply stability, Reuters reported.

“Crude oil slumped as the US and Iran explored a diplomatic solution to the eight-month conflict,” Hynes said. 

The possibility of further price declines remains closely tied to developments in peace negotiations. “What is clear, though, is that strong signals of progress in peace talks would mean more downside for prices,” two analysts from ING Bank noted.

By Tuhin Roy

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