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US Oil Update: Crude Dips Over 1% as Iran-Oman Talks Reportedly Continue

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Crude oil benchmarks fell more than 1% on Thursday as markets balanced diplomatic developments between Iran and Oman against intensifying regional military actions.

Front-month West Texas Intermediate crude futures fell 1.1% to $83.54 per barrel, while Brent futures dropped 1.4% to $89.48/bbl.

Amid the broader market caution, diplomatic channels remained active, with Iran-Oman talks concerning the management of the Strait of Hormuz continuing, according to the Iranian Labour News Agency.

"Working jointly with Oman, which shares jurisdiction over the Strait, Iran could argue that vessels transiting the strait should pay not for the right to pass, but for specific services rendered, such as navigational safety, vessel traffic management, security escorts, emergency response, and environmental protection," J.P. Morgan analysts noted.

"By structuring the measure as a service fee rather than a transit toll, and by coordinating with Oman as the other littoral state, Iran could propose a legal framework that appears consistent with international maritime law," J.P. Morgan added.

Meanwhile, physical supply friction intensified significantly as the US and Saudi Arabia targeted Iran-backed paramilitary forces in Iraq in retaliation for drone strikes on Saudi energy infrastructure.

With conflict actively spreading to the Red Sea amid Houthi threats of a Saudi blockade and commercial traffic through the Strait of Hormuz remaining severely restricted, energy markets remain highly sensitive to systemic risks.

US crude oil inventories dropped by 7.2 million barrels to 404.5 million barrels last week, the Energy Information Administration said on Wednesday. Crude inventories were about 7% below the five-year average for this time of year, the EIA said.

Despite temporary dips earlier in the week driven by brief pauses in bombing and premature optimism over diplomacy, RBC Capital Markets analysts noted in a Tuesday advisory that current oil prices may still be underestimating the danger of prolonged global supply disruptions.

Discounts for purchasers of Russian Urals crude in India have narrowed to $1-$2 a barrel below dated Brent this week amid renewed supply shortage worries, Reuters reported Wednesday.

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