Oil prices experienced a decline on Thursday following the announcement of a ceasefire agreement between Israel and Lebanon, which has sparked optimism for a potential broader resolution to the ongoing U.S.-Israeli conflict with Iran. This situation could facilitate the reopening of the crucial Strait of Hormuz.
Market activity remained cautious, leading to limited losses. At 1022 GMT, Brent crude futures decreased by $1.14, or 1.2%, settling at $96.67 per barrel, while U.S. West Texas Intermediate crude fell by 90 cents, or 0.9%, to $95.12.
The value of both contracts had risen approximately 2% on Wednesday amidst renewed tensions in the Middle East, which included Iranian assaults on Kuwait and U.S. military actions near the Strait of Hormuz.
Late Wednesday, Israel and Lebanon announced their agreement to implement a ceasefire, raising expectations for a potential diplomatic arrangement involving Washington and Tehran. Iran has stipulated that any agreement must include a cessation of hostilities between Israel and Hezbollah, a Lebanese group supported by Iran.
John Evans, an analyst with PVM Oil, stated, “Iran is demanding an end to Israel’s aggression towards Lebanon, particularly regarding Hezbollah, and it appears that we may be witnessing a significant development.”
Lebanese President Joseph Aoun confirmed on Thursday that the ceasefire would take effect within 24 hours, pending approval from all involved parties.
U.S. President Donald Trump indicated on Wednesday that there might be advancements in negotiations with Iran as early as this weekend.
Iranian Foreign Minister Abbas Araqchi noted on Wednesday that communications between Tehran and Washington had not ceased, although no significant progress had been achieved in ongoing negotiations. He added that both parties were reviewing exchanged documents.
In the United States, the Republican-controlled House of Representatives passed a resolution on Wednesday aimed at preventing Trump from pursuing military actions against Iran. For this resolution to be enacted, it would require approval from the Senate and two-thirds majorities in both chambers to override a likely veto from Trump.
UBS analyst Giovanni Staunovo remarked, “We believe that the most likely direction for prices is upward as long as supply remains constrained.”
On Thursday, Russian Deputy Prime Minister Alexander Novak reported that oil production in Russia has declined since the beginning of the year due to unplanned maintenance at refineries, marking the first acknowledgment of this drop by a Russian official.
Additionally, the U.S. Energy Information Administration reported on Wednesday that crude oil inventories in the United States fell by 8 million barrels, totaling 433.7 million barrels for the week ending May 29. This decrease was significantly larger than the 4-million-barrel drop that analysts had anticipated in a Reuters poll.
Sluggish demand from China has also contributed to the moderation of rising oil prices.
Trade sources indicated that Iranian oil prices have discounted for the first time since April, and Russian crude premiums have been reduced as traders lower prices to attract Chinese buyers amid weak demand.
