Key Points:
- Oil prices dipped as US and Iran show interest in renewed peace talks.
- The US has imposed a blockade on the Strait of Hormuz, testing a China-linked tanker.
- Saudi Arabia is reportedly pushing the US to lift the blockade and negotiate.
- Despite diplomatic signals, underlying supply squeeze continues, affecting fuel prices.
Oil prices dropped on Tuesday, following hints that Washington and Tehran might restart peace talks. This comes after the U.S. began a blockade of the Strait of Hormuz, with traders closely watching a China-linked vessel that might challenge these new restrictions.
Brent crude fell below $99 a barrel, while West Texas Intermediate (WTI) hovered near $97. According to sources familiar with the matter, both sides are discussing another round of direct negotiations for a longer-term ceasefire. The goal is to arrange these talks before the current two-week pause in hostilities, announced on April 7, expires.
U.S. President Donald Trump had earlier told reporters that Tehran had reached out, saying, “We’ve been called this morning by the right people, the appropriate people, and they want to work a deal.” Meanwhile, Iranian President Masoud Pezeshkian stated that the country was prepared to continue peace talks strictly within the framework of international law and regulations.
The war involving the U.S., Israel, and Iran, now in its seventh week, has severely disrupted the oil market. The conflict caused an unprecedented shock as energy infrastructure was attacked, and Iran restricted traffic through the Strait of Hormuz. On Monday, the U.S. escalated matters with its own blockade of vessels entering or leaving Iran’s Persian Gulf ports or coastal areas.
On Tuesday, tracking data showed a U.S.-sanctioned tanker linked to China, the Rich Starry, moving through the strait. This vessel’s passage could test the new U.S. blockade. It’s unclear if it had visited Iranian ports or if it was carrying cargo.
However, Saudi Arabia is reportedly pressuring the U.S. to end the blockade of the strait and return to negotiations, according to the Wall Street Journal, citing unidentified Arab officials. This pushback comes amid worries that Trump’s move could lead Iran to disrupt other important shipping routes.
Robert Rennie, head of commodity and carbon research at Westpac Banking Corp., believes the prospect of renewed talks will help “cap outright moves in Brent and WTI futures.” He added, “Even if diplomatic signals keep headline benchmarks anchored around or below $100, the underlying supply squeeze is intensifying, with real-economy fuel prices likely to remain under upward pressure as long as flows through Hormuz remain effectively constrained.”
Both gasoline and diesel retail costs in the U.S. reached their highest levels since 2022 earlier this month. In Europe, jet fuel and diesel prices have soared to all-time or near-record highs, exceeding $200 a barrel.
Vice President JD Vance, who led the U.S. delegation in unsuccessful talks with Iran in Pakistan over the weekend, acknowledged the pain spiking gasoline prices caused for U.S. consumers. He stated that the blockade imposed on Tehran’s oil increased U.S. leverage for negotiations.
