West Texas Intermediate (WTI) crude oil closed sharply lower on Wednesday after as U.S. President Trump said negotiations with Iran were in their final stages while threatening to renew attacks if a deal cannot be reached.
WTI crude oil for July delivery closed down US$5.89 to settle at US$98.26 per barrel, while July Brent oil was last seen down US$6.18 to US$105.10.
Reuters reported Trump on Wednesday told reporters "We're in the final stages of Iran. We'll see what happens. Either have a deal or we're going to do some things that are a little bit nasty, but hopefully that won't happen".
Iranian media confirmed it received a fresh U.S. offer through an intermediary and is reviewing the proposed deal.
The war has blocked the Strait of Hormuz since it began on Feb. 28, keeping the 20% of daily oil demand supplied by Persian Gulf nations mostly off the market and producing the world's largest-ever supply shock. Though the closure of the Strait has already pushed oil prices up by more than half, analytics firm Woods Mackenzie said if the war is extended until the end of the year, oil prices could rise as high as US$200 per barrel, though a quick settlement could lower Brent prices to US$80 by year end.
"The Strait of Hormuz is the most critical chokepoint in global energy markets, and a prolonged closure would become far more than an energy crisis," said Peter Martin, head of economics at Wood Mackenzie. "The longer disruption persists, the greater the impact on energy prices, industrial activity, trade flows and global economic growth."
The market is awaiting the start of the high-demand U.S. summer driving season, which begins with this weekend's Memorial Day holiday. The start of the season comes as U.S. oil inventories continue to decline, with the Energy Information Administration reporting U.S. commercial oil inventories fell 7.9-million barrels last week, well above consensus estimate for a drop of 2.9-million barrels among analysts polled by Reuters.