On Thursday, oil prices experienced a downturn, wiping out earlier gains, following reports that U.S. and Iranian negotiators had reached a tentative agreement to extend a ceasefire.
Sources informed CNBC that negotiators have settled on a 60-day memorandum of understanding aimed at prolonging the ceasefire and initiating talks over Iran’s nuclear agenda. However, this agreement still requires the approval of President Donald Trump, according to the sources. Axios was the first to break this news.
Brent crude futures, known as the international oil benchmark, dropped by 58 cents, closing at $93.71 per barrel. On the other hand, U.S. West Texas Intermediate futures saw a minor increase, rising by 22 cents to settle at $88.90 per barrel.
Earlier in the day, prices had surged following an exchange of military strikes between the U.S. and Iran. The Iranian Revolutionary Guard claimed responsibility for targeting a U.S. airbase at approximately 4:50 a.m. local time, though they did not specify the location.
In response, U.S. Central Command reported that Iran had launched ballistic missiles toward Kuwait, which were successfully intercepted.
This latest escalation followed American strikes on an Iranian military site perceived as a threat to U.S. forces and commercial vessels navigating the Strait of Hormuz, according to a U.S. official who spoke to MS NOW. Additionally, several Iranian drones were reportedly intercepted and destroyed.
Oil prices have tumbled more than 10% since May 18 when Trump said he called off an imminent wave of military strikes against Iran to allow more time for negotiations.
Secretary of State Marco Rubio said Wednesday that the talks have made some progress. Rubio said Trump prefers diplomacy and will give talks with Iran “every chance to succeed.”
The U.S. and Iran have been locked in a stalemate over the Strait of Hormuz since agreeing to a fragile ceasefire in April.
Crude oil over the past six months
Iran’s state television claimed Wednesday that Tehran agreed in a draft memorandum of understanding, or MOU, with the U.S. to open the Strait of Hormuz to prewar levels of commercial ship traffic, according to Reuters.
But Iran and Oman would manage traffic through the strait under the MOU, state television said. The White House dismissed the report as a “complete fabrication.” Trump said later Wednesday that no nation will control shipping through the strait.
Effective control
But Middle East leaders already believe that Iran has effectively taken control of Hormuz, said Amos Hochstein, who served as a senior energy advisor to former President Joe Biden.
“No matter what happens, the Iranians will control the Strait of Hormuz for the foreseeable future, it doesn’t even matter what the deal says. Everybody in the region believes that,” Hochstein told CNBC’s “Squawk Box” on Thursday.
In a note published late Wednesday, Citigroup said oil markets were finding firmer footing as investors increasingly priced out worst-case supply disruption scenarios amid signs Washington and Tehran were moving closer to an agreement.
Still, the bank cautioned that uncertainty over the timing of any deal was keeping central banks on alert, with policymakers weighing the possibility of tighter monetary settings in response to energy-driven inflation risks.
Citi said the prolonged run-up in crude prices was beginning to spill into broader inflation pressures, particularly through “second round effects,” prompting some central banks to grow more hawkish.
“Wall Street wants the war to end, but the reason the war is not ending is because of Wall Street,” Hochstein said. “Wall Street wants to believe what President Trump is saying is right, that we are on the precipice of a deal any second, which is why oil prices have dropped.”
— CNBC’s Kevin Breuninger and Eamon Javers contributed to this report.
