Oil prices erased their losses after Yemen's Houthi group issued a new threat to shipping in the Middle East, dampening optimism about talks between the United States and Iran.
Brent crude was trading at around $80 a barrel, while West Texas Intermediate crude was near $76 a barrel, after losing more than 10% during the previous two sessions.
Houthi spokesman Yahya Saree had stated that attacks on Saudi ships in the northern Red Sea, a key alternative route during the unrest in the Strait of Hormuz, could escalate.
Oil prices fall amid potential agreement to reopen the Strait of Hormuz
Crude oil prices fell this week due to optimism that an agreement could be reached to reopen the Strait of Hormuz, potentially paving the way for a flow of supplies from the Arabian Gulf.
Qatar said on Tuesday that a temporary proposal had been drafted, while both Washington and Tehran indicated progress on Tuesday in talks aimed at reopening the waterway.
In a separate development, Axios reported that the United States, Iran and Oman are nearing a 60-day interim agreement to reopen the Strait of Hormuz, with Washington aiming to announce it later on Wednesday.
The proposal stipulates that no fees or charges will be imposed for passage, provided that ships heading into the Gulf use the northern route, and ships leaving take the southern route.
Doubts about the interim agreement
Oil prices have fallen sharply over the past two weeks after US President Donald Trump said he had postponed new strikes on Iran to give talks more time.
Even if a short-term agreement is reached to restore commercial shipping traffic in the Strait to normal, it may still be unable to decisively end the war or address Trump's concerns about Iran's nuclear program.
Robert Yawger, director of energy futures at Mizuho Securities USA LLC, told Bloomberg: “Now that emotions have calmed down somewhat, there may be an opportunity to reach an agreement.”
He added: I still expect that we will eventually reach a bad agreement that will allow the United States to declare some kind of victory, but will leave many issues unresolved, including the nuclear agreement.
Intensify diplomatic efforts
The previous ceasefire agreement between the United States and Iran lasted barely a month before collapsing due to the Strait of Hormuz. This helped push Brent crude to fluctuate around $32 last month, as the conflict reignited and spread to the Red Sea, before another ceasefire collapsed in late July, a ceasefire intended to allow diplomatic efforts to continue.
Trump discussed efforts to de-escalate tensions between the United States and Iran with the Emir of Qatar, Sheikh Tamim bin Hamad Al Thani, in a phone call on Tuesday, according to the Qatari government. A White House official confirmed the call but provided no further details.
In a sign of potential progress, Iran is considering allowing European countries to clear mines from the Strait of Hormuz, according to diplomats familiar with the matter. Separately, the Iranian Foreign Ministry said that discussions between Tehran and Oman were positive and focused on ensuring safe passage through the waterway, according to the state-run IRIB News Agency.
In a related context, US crude oil inventories rose by 2.7 million barrels last week, while inventories in Cushing, Oklahoma, the delivery hub for West Texas Intermediate crude, increased by 2.4 million barrels.
If confirmed in official data due later on Wednesday, it would be the biggest rise in Cushing since March and would help push levels back above the widely considered 20 million barrels operating minimum.
Price movements:
Brent crude futures for October settlement rose 0.7% to $79.94 a barrel at 8:47 a.m. in London.
West Texas Intermediate crude futures for September delivery rose 0.2% to $75.93 a barrel.
