Oil prices decline after diplomatic push in Iran war

Oil prices declined on Thursday as traders assessed new diplomatic efforts in the Middle East, aimed at averting potential US military action against Iran.

Brent, the benchmark for two thirds of the world’s oil, slipped to $114.10 a barrel at 7.48am UAE time, after gaining more than 1 per cent in the previous session. West Texas Intermediate, the gauge that tracks US crude, was trading above $101 a barrel.

US Vice President JD Vance reportedly sent a letter to Iran’s National Security Council ⁠chief Mohsen ​Rezaei in an effort to revive negotiations, which President Donald Trump played down, saying he did not direct Mr Vance to reach out to the Iranians.

"No, what that is ... they need help with medical supplies and various things. He asked me what I thought, I said if you want to do that, that's okay," Mr Trump told reporters when asked if he had directed Mr Vance to send a letter.

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The Wall Street Journal reported on Wednesday, quoting ​US ‌officials, that Mr Vance sent a letter to Mr Rezaei in a bid to revive peace negotiations. "Basically it's about getting supplies in to help people that are not well," Mr Trump added.

The latest diplomatic moves have raised hopes of a resolution, although uncertainty over the conflict and the risk of further disruption to global oil supplies continue to weigh on market sentiment.

Oil prices had climbed sharply on Wednesday amid fears of renewed US military action and further disruption to Middle East supplies. Brent settled at $115.32 a barrel, up 1.3 per cent, on Wednesday, while WTI closed at $102.78 a barrel, up 2.9 per cent.

"Oil prices remain volatile as markets respond to developments affecting regional production and infrastructure," Nick Stadtmiller, chief economist and group head of research at Emirates NBD, said in a research note.

Oil remains at multi-month highs as tensions linger in the Middle East. The WSJ reported that Washington has warned several Gulf Arab countries to prepare for a possible renewed US military campaign against Iran after the November 3 midterm elections.

Swiss lender UBS said in a report this week it expects Brent crude prices to stay elevated, near $110 a barrel at the end of the year, as Middle Eastern supply remains volatile and geopolitical uncertainty persists.

"Global inventories have fallen sharply, with pledged strategic oil reserves releases largely completed. An under-supplied market could push commercial stocks lower and should sustain oil prices. Record freight costs, constrained tanker capacity, and recovering Chinese imports are other factors likely to keep oil prices high," UBS commodity analyst Giovanni Staunovo said.

"Uncertainty around our forecasts remains elevated, reflecting both the unpredictable nature of the Middle East conflict, and the pace of recovery in Gulf production and global oil demand."