Crude oil futures fell in after-hours trading on Wednesday, after reports that the US and Iran are close to an agreement to end the Middle East conflict, fueling optimism that the Strait of Hormuz may soon reopen to global trade.
Front-month West Texas Intermediate crude futures retreated by 5.93% to $96.21 per barrel, while Brent futures dropped by 7.05% to $102.59/bbl.
"Tighter US crude inventories and ongoing Middle East supply risks continue to support prices despite improving sentiment around diplomacy," said Soojin Kim, research analyst at MUFG.
US crude and fuel inventories continued to draw down last week, with the latest data from the Energy Information Administration showing that crude oil inventories decreased by 2.3 million barrels to 457.2 mmbbls.
Crude oil input to refineries dropped by 42,000 barrels per day from the previous week to average about 16 mmb/d in the week ending May 1, the EIA said, adding that crude oil production dropped by 13,000 b/d to 13.6 mmb/d.
On Wednesday, Iran said it was reviewing a US peace proposal expected to end the conflict, as President Trump said "Great Progress" has been made on a final agreement.
Trump sounded more optimistic about the chances of a peace deal. Trump said the US would pause its efforts to escort ships through the Hormuz, as White House officials reportedly believe Washington is nearing a one-page, 14-point memorandum of understanding to end the conflict.
Earlier in the day, US Secretary of State Marco Rubio told reporters at the White House that "Operation Epic Fury is concluded," 66 days after the outbreak of the conflict. "We achieved the objectives of that operation," he said.
Pakistan, the mediator in the US-Iran talks, said the two sides were closing in on a one-page memorandum of understanding, according to media reports.
ING strategists said a deal that normalises oil flows through Hormuz is crucial, with about 13 million b/d of disrupted supply largely offset by declining inventory.
However, Rystad Energy strategists said even if an agreement is reached, the impact on actual oil flows would be slower and more conditional than current price action suggests.
"A deal announcement would move futures further immediately, in fact even the potential of a deal is already triggering a decline in oil prices. However, the physical market does not run on political timelines," said Paola Rodriguez-Masiu, Rystad's chief oil analyst.
On the supply front, Venezuelan crude exports climbed to a seven-month high of just over 1.05 million barrels per day in April, more than double from January levels, as a revamped licensing framework and easing trade restrictions supported a broader recovery in flows.
Kpler said the rebound was driven by stronger demand from traditional buyers, with the US importing about 400,000 b/d and India taking 384,000 b/d.