People gather on a beach near Bandar Abbas, Iran, on May 31, with vessels passing through the Strait of Hormuz visible in the background. [Reuters]
People gather on a beach near Bandar Abbas, Iran, on May 31, with vessels passing through the Strait of Hormuz visible in the background. [Reuters]

Oil prices tumbled more than 5% for a second consecutive session Tuesday as expectations grew that the United States and Iran are making progress in negotiations over passage through the Strait of Hormuz. The geopolitical risk premium built into prices since the war began is rapidly unwinding amid easing concerns about supply disruptions from the Middle East.

Brent crude for October delivery fell 5.3% to settle at $79.36 a barrel on the ICE Futures Exchange on Tuesday. West Texas Intermediate for September delivery closed down 5.7% at $75.77 a barrel on the New York Mercantile Exchange.

Brent and WTI had already dropped 4.7% and 5.1%, respectively, the previous day, bringing two-day losses to around 10% for both benchmarks.

The sharp selloff was driven by expectations that US-Iran negotiations over reopening the Strait of Hormuz are gaining traction.

US Secretary of State Marco Rubio told reporters Tuesday that Washington is involved in talks between Oman and Iran on "how more ships can safely transit the Strait of Hormuz in the short term while longer-term negotiations on denuclearization continue." He said there had been progress in the negotiations but that a final agreement had not yet been reached, adding that he hoped a deal would come "very soon."

Treasury Secretary Scott Bessent offered an even more optimistic outlook.

In a CNBC interview, Bessent said he believed a deal to reopen the strait and move the conflict "into a more normal phase" could come either Wednesday or Thursday.

Qatar also confirmed that mediation efforts are ongoing. Majed bin Mohammed Al-Ansari, a spokesperson for Qatar's Foreign Ministry, said the US and Iran are not in direct talks but that contact through intermediaries is continuing.

Markets expect that a full reopening of the Strait of Hormuz would significantly reduce fears of supply disruptions.

Simon Peter Masabneh, an analyst at trading firm XS.com, told Reuters that meaningful progress in US-Iran negotiations would lead markets to price in a lower probability of supply disruptions, and that the geopolitical risk premium embedded in oil prices could shrink further.

Goldman Sachs forecast that Brent crude would trade between $80 and $90 a barrel until either a new US-Iran agreement is officially confirmed or a significant escalation in military conflict introduces a new variable.


sjy@heraldcorp.com