Oil prices fell sharply in early asian trade on Wednesday, with both major benchmarks dropping more than 5% as traders reacted to signs of potential de-escalation in the Middle East conflict as well as a crude inventory build in the U.S.
At the time of writing, WTI crude was trading at $87.51, down 5.24%, while Brent crude had fallen below the psychologically important $100 to $98.03, down 6.08%.
The selloff follows a volatile 48 hours in oil markets, where prices had surged following President Trump’s threat to blow up Iranian power plants and then dropped when he claimed the countries were moving toward an agreement.
New reports suggest that the U.S. has sent a potential peace framework to Iran, sparking hopes of a temporary ceasefire. Iran has added to the downward pressure on prices by circulating a letter to the International Maritime Organization stating that “non-hostile vessels” could transit the Strait of Hormuz in coordination with Iranian authorities.
President Trump said negotiations were progressing and that Iran was “talking sense,” while reports suggested a 15-point settlement proposal could pave the way for a one-month ceasefire. Iran, however, has publicly denied that direct talks are taking place.
To add to the downward pressure, particularly for WTI, the API reported an unexpected build in crude and gasoline inventories for the week ending March 20.
Despite the price drop, underlying geopolitical risks remain significant, and the physical market continues to deal with shortages.
The Pentagon is reportedly preparing to deploy elements of the 82nd Airborne Division to the Middle East, while Israeli officials have threatened to escalate operations against Hezbollah, including a potential ground offensive in southern Lebanon.
For now, the drop below $100 Brent has largely been driven by optimism over a potential deal, but there are no signs of things cooling off in the region before then. The drone attack on a fuel tank at Kuwait International Airport on Wednesday is just the latest example of continued strikes across the Middle East. (Oil Price)