Oil Dips Amid US-Iran Tensions and Strait of Hormuz Closure

Oil prices declined on Thursday, reversing earlier gains sparked by rising tensions between the U.S. and Iran. The drop came as traders weighed the potential impact of supply disruptions after Iran closed the Strait of Hormuz to all vessels. The move followed additional U.S. strikes on Iran, with President Donald Trump warning of further attacks unless a peace deal is reached. Despite the escalation, Iranian sources told Reuters that talks to secure a preliminary agreement are intensifying, focusing on the release of frozen Iranian funds.

The closure of the Strait of Hormuz, a critical choke point for global oil shipments, raised concerns over prolonged supply disruptions. Analyst Soojin Kim of MUFG noted that the latest escalation adds uncertainty to fragile ceasefire negotiations, which have already constrained exports of crude, fuel, and LNG. However, there were signs that the situation might not be as severe as feared. The U.S. military reported that commercial ships continued to transit the Strait, and no U.S. warships had been struck, contradicting claims by Iran's state media.

Weaker Chinese fuel demand also helped temper the oil price rally. Falling gasoline and diesel use, along with lower crude imports, contributed to dampening global price pressures. Brent futures fell 53 cents, or 0.6%, to $92.57 a barrel, while U.S. West Texas Intermediate (WTI) crude lost 36 cents, or 0.4%, to $89.67. Both contracts had gained more than $2 earlier in the session. Additionally, Indian refiners reported securing enough crude to meet their needs through at least August, easing some concerns over supply shortages.