Oil prices slide as Trump signals potential peace deal with Iran

WEB DESK: Oil prices extended their decline for a second consecutive session on Wednesday morning, as markets reacted to hints from US President Donald Trump that a diplomatic resolution to the conflict with Iran may be on the horizon.

The prospect of a breakthrough has offered a reprieve to global energy markets, which have been severely strained since the outbreak of the US-Israeli war against Iran on 28 February, according to Reuters.

Brent crude futures for July delivery dropped by $1.52, or 1.38pc, to $108.35 per barrel, following a sharp 4pc tumble during Tuesday’s trading. Meanwhile, West Texas Intermediate (WTI) futures for June fell by $1.50 to $100.77.

Trump pauses Hormuz escorts amid ‘progress’

The downward pressure on prices followed an unexpected announcement from President Trump, who stated he would briefly pause “Project Freedom” a US military operation designed to escort stranded tankers through the volatile Strait of Hormuz.

In a social media post, the President cited “progress toward a comprehensive agreement” with Tehran, though he remained characteristically vague on the specific terms of the deal.

While the US Navy’s blockade of Iranian ports is set to remain in full force, the pause in active escort operations is being viewed by traders as a de-escalation signal.

The Strait of Hormuz is the world’s most important oil artery, typically carrying 20pc of global supply. Since the conflict began, the passage has been effectively throttled, recently driving Brent prices to their highest levels since March 2022.

Supply crunch persists despite market optimism

Despite the diplomatic optimism, the physical reality of the global oil market remains tight. Hours before the President’s announcement, US Secretary of State Marco Rubio had briefed reporters on the necessity of the escort missions, highlighting the continued risks to shipping.

This was underscored by US military reports on Monday confirming the destruction of several Iranian small boats and missiles during a mission to guide two vessels out of the Gulf.

The prolonged closure of the Strait has forced refineries to lean heavily on existing stockpiles. Data from the American Petroleum Institute (API) released on Tuesday indicated that US crude inventories fell by a substantial 8.1m barrels in the week ending 1 May.

Gasoline and distillate stocks also saw significant draws, falling by 6.1m and 4.6m barrels respectively. Analysts suggest that until a peace deal is formally signed and the blockade lifted, the underlying supply deficit will likely provide a floor for prices.