Oil prices declined on Thursday as markets reacted to the announcement of a ceasefire agreement between Israel and Lebanon.
The latter has strengthened expectations that broader diplomatic progress in the Middle East remained possible.
However, the market could continue to face diplomatic risks amid military activity as well as the ongoing closure of the Strait of Hormuz.
On the supply side, even under a favorable diplomatic scenario with a reopening of the Strait, crude volumes could remain constrained for a longer period of time. Restoring production and shipping across key Gulf exporters to normal levels could take several weeks, leaving the market relatively tight.
Meanwhile, efforts to circumvent the strategic waterway continue. However, their impact on the prices could remain limited. Looking ahead, oil markets are likely to remain driven by diplomatic developments. While improving geopolitical conditions could continue to weigh on prices, the gradual nature of production and logistics normalisation may limit the pace of any sustained decline.
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