Hormuz Negotiations Misleading Market, Oil Prices Fall

Crude oil prices fell on Thursday despite ongoing negotiations between Iran and Oman over control of the Strait of Hormuz, which has been a major point of contention in the ongoing conflict. The price of West Texas Intermediate (WTI) crude oil dropped more than 1.5% to just above $82.00 per barrel.

The talks between Iran and Oman are centered around who controls and tolls the Strait of Hormuz, rather than finding a peaceful resolution to the war. This has led to confusion in the market, with many believing that progress is being made towards ending the conflict when in fact it's just about negotiating control of the waterway.

The ongoing war has had a significant impact on global oil supplies, with every route built to avoid the chokepoint now under attack. The drone strike on two gas vessels at Egypt's Damietta port on Wednesday added another front to the conflict, and tankers carrying Caspian volumes were suspended overnight after two associated tankers were attacked.

The market is not reading the escalation of the war correctly, with prices falling despite a 20% increase in WTI crude oil since its early-July low. The rally has been sold on the same headline, which is progress in the Iran-Oman talks, but this is not about ending the war.

Tehran rejected Oman's proposal for shared oversight of the Strait and countered with an arrangement handing Iran more control. Iran's foreign ministry stated that there are no plans to negotiate with Washington at all, so the most bullish plausible outcome here is a waterway reopening under Iranian supervision with a fee attached.