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US Oil Update: Futures Fall as US-Iran Talks Continue Despite Mideast Tensions

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Crude oil futures retreated in midday trading on Thursday as investors assessed continued diplomatic engagement between the US and Iran against concerns that renewed hostilities in the Middle East could threaten global energy supplies.

Front-month West Texas Intermediate crude futures fell by 0.7% to $83.86 per barrel, while Brent futures were down 1.7% to $89.33/bbl.

Soojin Kim, research analyst at MUFG, said that US commercial crude inventories fell to their lowest level since 2018, underscoring tightening physical supply, while about 13 million b/d of Gulf oil exports continued to flow through the Strait of Hormuz.

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.

Macquarie strategists had forecasted a 2.5-mmbbl draw for the week ended July 24.

On Thursday, Pakistan's Foreign Ministry spokesperson Tahir Andrabi said that peace negotiations between the US and Iran are "ongoing" to restore stability, particularly in the Strait of Hormuz, according to media reports.

Andrabi reportedly urged the warring sides to find a solution through dialogue and diplomacy, while affirming Pakistan's commitment to diplomacy.

Pressuring prices, signs of increased flows through the Hormuz have partly offset concerns over a fresh wave of hostilities from Iran to the Black Sea.

Traffic through the Middle East energy chokepoints picked up on July 28, with Kpler data showing 12 and 41 confirmed crossings in the Hormuz and Bab el-Mandeb, respectively.

Meanwhile, the Middle East conflict escalated on Wednesday after the US retaliated against Iranian strikes on American forces with a fresh wave of attacks.

Iran's Islamic Revolutionary Guard Corps threatened further escalation on Thursday after a wave of retaliatory US attacks. The IRGC said that it "will punish the aggressor today," adding that countries aiding the US in the conflict would also "receive a harsh response," according to local media.

On Wednesday, the US launched a wave of strikes against Iranian military targets in retaliation for missile attacks on American forces in the region.

US Central Command described the operation as a "powerful response" to Tuesday's attempted Iranian attacks on US forces in the Middle East.

Saxo Bank strategists said that US-Iran fighting threatened global energy supplies after an attack on US forces in Jordan prompted a strong response vow from President Trump.

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