Oil falls more than 1% on easing supply concerns after US, Iran agree to talks

By Seher Dareen

LONDON, Feb 5 (Reuters) – Oil prices fell more than 1% on Thursday but held close to multi-month highs after the U.S. and Iran agreed to hold talks in Oman on Friday.

Brent crude futures were down 86 cents, or 1.2%, at $68.6 per barrel at 1036 GMT. U.S. West Texas Intermediate crude prices fell 82 cents, or around 1.3%, to trade at $64.32.

However Brent remained only $3 from the five-month high it hit at the end of January on worries over oil supply disruptions. 

Oil prices are strongly influenced by tensions in the Middle East, with markets closely watching the talks in Oman, said UBS analyst Giovanni Staunovo. 

The discussions come as the U.S. builds up forces in the Middle East, and regional players seek to avoid a military confrontation that many fear could escalate into a wider war.

About a fifth of the world’s total oil consumption passes through the Strait of Hormuz between Oman and Iran. Other OPEC members, Saudi Arabia, the United Arab Emirates, Kuwait and Iraq, export most of their crude via the strait, as does Iran.

PVM Oil Associates analyst John Evans said that ahead of Friday’s meeting the market would likely drift with hopes of a diplomatic breakthrough.

“However, there will be no comfort as such in prices, for one untoward remark or a breakdown in talks and the Brent price will soon be banging on the door of $70 a barrel and looking at year-to-date highs,” he said.

Volatility has led to investors rushing to lock in oil prices this year, trading a record number of WTI Midland at Houston contracts in January, amid concerns Middle Eastern supply risks and more Venezuelan barrels heading to the U.S. Gulf Coast.

Strength in the U.S. dollar and volatility in precious metals also weighed on commodities and risk sentiment more broadly on Thursday, analysts said. 

(Reporting by Seher Dareen in London, Katya Golubkova in Tokyo and Siyi Liu in Singapore; Editing by Sonali Paul, Jamie Freed and Jan Harvey)