Oil extends drop as Iran TV says it has seen draft deal with US to reopen Hormuz

By Robert Harvey

LONDON, May 27 (Reuters) – Oil extended losses on Wednesday, falling over 5% after Iranian state TV said it had seen a draft of an initial, unofficial framework for an agreement with the United States on ending their conflict and reopening the Strait of Hormuz.

The report, plus a pick-up in tanker traffic through the strait, outweighed Iran’s earlier comments that the United States had violated a ceasefire and a tanker on Tuesday reporting an explosion off the Oman coast.

Brent crude futures fell $3.66, or 3.7%, to $95.92 a barrel by 1305 GMT, while U.S. West Texas Intermediate (WTI) crude lost $5.19, or 5.59%, to $88.70.

The losses more than erased Brent’s gains from Tuesday. Brent and WTI touched intraday lows of $94.16 and $87.77 per barrel on Wednesday, their lowest in over a month. 

There has been palpable progress towards ending the supply crisis, with an increasing number of ships transiting the Strait of Hormuz, PVM analyst Tamas Varga said. “This is why the downward pressure has resumed,” he said, referring to oil prices.

The U.S. 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.

“The market keeps reacting to headlines,” UBS analyst Giovanni Staunovo said.

“There is no indication that this is something different than what we kept hearing since the weekend, and the Iranians have indicated a deal is not imminent. Meanwhile, oil flows through the Strait remain restricted, reducing further oil inventories.”

July Brent futures rose 3.6% in the previous session after the U.S. carried out new strikes in Iran, hurting hopes that had risen over the weekend that Washington and Tehran 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 toward 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 (IEA). 

(Reporting by Robert Harvey in London, Colleen Howe in Beijing; Editing by Alex Lawler and Elaine Hardcastle)