Oil prices fell for a second consecutive session on Wednesday as markets reacted to growing expectations that diplomatic efforts between the United States and Iran could eventually lead to a broader easing of tensions in the Middle East.
Reassuring signals from Washington helped improve sentiment.
At the same time, reports that an agreement between the two countries could be reached soon to end the gridlock and reopen the Strait of Hormuz raised hopes that supply currently trapped in the Gulf could return to global markets.
However, constraints on maritime flows remain in place, leaving the physical market in a state of tightness. In addition, any normalization is likely to be gradual. Looking ahead, oil markets are likely to remain highly exposed to renewed volatility in the case of a setback, while market participants could remain cautious ahead of any new developments. While optimism around an agreement could maintain downward pressure on prices in the near term, failure to reach an agreement or renewed tensions could quickly reverse the recent decline.
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