Oil drops 5% on US-Iran peace push; analysts stay cautious

Oil prices tumbled nearly 5% on Wednesday following reports that the United States had sent a 15-point plan to Iran aimed at ending the conflict, raising the prospect of a ceasefire that could ease supply disruptions from the critical Middle East producing region.

On Tuesday, US President Donald Trump confirmed that negotiations with Iran are underway to conclude the conflict in the Middle East.

“They are talking to us, and they are talking sense,” Trump said when questioned about the potential conclusion of the conflict.

Brent crude futures dropped to $99.21 a barrel, 5%, after earlier hitting a low of $97.15. Similarly, US West Texas Intermediate (WTI) crude futures declined by 4.1%, to $88.54 a barrel, having previously reached a low of $86.72.

The benchmarks initially climbed by nearly 5% on Tuesday but later saw those gains partially reversed during volatile trading after the settlement period.

Peace negotiations 

The United States, according to President Donald Trump, is making strides in peace negotiations to end the conflict with Iran.

According to reports, Washington has presented Tehran with a 15-point proposal for a settlement.

This proposed plan, which the US is reportedly seeking a month-long ceasefire to discuss, includes the dismantlement of Iran's nuclear program, an end to support for proxy groups, and the reopening of the Strait of Hormuz.

Markets are expected to remain volatile, as some analysts express scepticism about the progress of these talks.

“However, a solution as to how the Strait of Hormuz can be made safe for shipping again remains elusive,” Carsten Fritsch, commodity analyst at Commerzbank AG said. 

“A renewed escalation remains a possibility,” he added. 

According to Priyanka Sachdeva, a senior market analyst at Phillip Nova, ongoing developments in the Middle East will continue to be the primary factor driving oil prices, causing them to fluctuate widely in the immediate future.

Supply disruptions and global response

The ongoing conflict has severely impacted the shipment of oil and liquefied natural gas (LNG) through the Strait, which is a crucial channel typically transporting around 20% of the global gas and crude supply. 

As a result, the International Energy Agency has characterised this situation as the most significant oil supply disruption ever recorded.

Meanwhile, Pakistan's prime minister offered on Tuesday to host talks between the US and Iran.

Despite this diplomatic overture, the conflict persisted, with continued strikes by US, Israeli, and Iranian forces.

Additionally, Washington was preparing to deploy additional troops to the region.

To mitigate disruptions in the Strait of Hormuz, Saudi Arabia significantly increased oil exports from its Red Sea Yanbu port last week, reaching nearly 4 million barrels per day—a notable rise since the war's onset, according to shipping data.

Meanwhile, Iran informed the United Nations Security Council and the International Maritime Organization that "non-hostile vessels" could traverse the Strait of Hormuz, provided they coordinate with Iranian authorities. 

On the supply front, American Petroleum Institute figures reported on Tuesday that domestic stocks of crude, gasoline, and distillates all rose last week.

In the week ending March 20, crude stocks increased by 2.35 million barrels, while inventories of gasoline and distillates also rose by 528,000 barrels and 1.39 million barrels.