US-Iran Ceasefire Talks Boost Market Expectations; Oil Prices Fall But Supply Risks Remain

Oil prices fell on Friday as markets weighed the likelihood of a US-Iran ceasefire while also worrying that escalating Houthi attacks on Saudi Arabia could disrupt supplies from the key Middle Eastern oil producer. The market had endured a week of sharp volatility before this. According to sources close to the discussions, US and Iranian negotiators, who held talks in New York this week, have explored a phased path to end the conflict, including Tehran reopening the Strait of Hormuz and Washington lifting economic sanctions on Iran. Iranian President Masoud Pezeshkian said Thursday that when the war ends still depends on the US’s decision. However, Reuters’ vessel traffic data shows that the physical supply situation remains fragile. Only 10 commodity vessels passed through the Strait of Hormuz on Wednesday, up from 7 the day before, but still well below the average of around 17 vessels per day over the past 10 days. Positive news on diplomatic progress could help erode some of the geopolitical premium priced into oil, but shipping data indicates that any meaningful normalization is still a long way off.