The oil market fell sharply on Wednesday on optimism that the US and Iran were close to an agreement to end the conflict that has caused the largest energy supply disruption in history.
Brent crude futures tumbled nearly 8 per cent to close at $101.27 per barrel, while the US West Texas Intermediate (WTI) crude futures lost about 7 per cent to trade at $95.08.
Reuters reported that Pakistan said the United States and Iran were closing in on an agreement on a one-page memorandum of understanding.
Iran said on Wednesday it was reviewing a new US proposal and would convey its response soon via Pakistan. The country had said earlier that it would only accept a fair and comprehensive agreement.
US media outlet Axios reported that America expects Iranian responses on several key points in the next 48 hours, citing sources that said this was the closest the parties had agreed since the war began.
However, President Donald Trump on Wednesday expressed doubt that a deal would be finalised. He said it was “perhaps a big assumption” to think that Iran would accept the proposal. He threatened to resume military strikes on Iran if it did not agree.
Equally, a senior Iranian parliament member said the US proposal was more of a wish list than a reality.
Earlier this week, the US military said that it destroyed several Iranian small boats as part of efforts to help stranded ships exit the Strait of Hormuz, a waterway responsible for 20 per cent of crude and Liquified Natural Gas (LNG) flows. Market analysts noted that the global oil flow would take time to normalise even if the strait is restored.
The Strait of Hormuz closure has resulted in a drawdown in global oil and fuel inventories as refineries try to offset production shortfalls. Surging oil and energy costs are already creating demand destruction globally.
The US Energy Information Administration (EIA) said on Wednesday that US crude and fuel inventories continued to draw down last week as countries around the globe scrambled to fill supply gaps caused by disruptions from the conflict in the Middle East. Crude oil stocks fell by 2.3 million barrels to 457.2 million barrels last week.
