BY COMFORT OGBONNA
Global oil prices fell sharply on Wednesday as investors reacted to growing expectations that diplomatic negotiations could ease tensions in the Middle East and restore disrupted energy supplies. The decline came after reports that the United States had presented Iran with a detailed proposal aimed at ending the ongoing conflict between the two countries, raising hopes that a ceasefire could soon be reached.
Brent crude futures dropped by $4.89, or about 4.7%, to $99.60 per barrel in early trading, after earlier sliding to an intraday low of $97.57. U.S. West Texas Intermediate crude also declined, falling $3.54, or 3.8%, to $88.81 per barrel after touching a low of $86.72.
The fall in prices followed a volatile session the previous day when both benchmarks had surged nearly 5% amid concerns about supply disruptions before losing some of those gains in late trading. Markets have been swinging sharply as traders respond to every development in the geopolitical situation, particularly surrounding the Strait of Hormuz, one of the most critical oil transit routes in the world.
Analysts say the latest price drop reflects cautious optimism among traders that diplomacy could prevent further escalation and allow oil shipments from the region to resume.
Hiroyuki Kikukawa, chief strategist at Nissan Securities Investment, said that expectations of a potential ceasefire have slightly improved, prompting investors to lock in profits after recent gains. However, he warned that uncertainty surrounding the outcome of negotiations remains high, limiting the extent of the selloff.
The diplomatic developments gained attention after U.S. President Donald Trump said on Tuesday that negotiations aimed at ending the war with Iran were making progress. A source familiar with the discussions confirmed that Washington had delivered a 15-point proposal outlining terms for a possible settlement.
According to reports, the plan includes several major conditions, such as dismantling Iran’s nuclear program, ending its support for regional proxy groups, and reopening the Strait of Hormuz to allow the free flow of commercial shipping. Israeli media outlet Channel 2 reported that U.S. officials are also seeking a temporary ceasefire lasting about one month to create space for detailed negotiations over the proposed agreement.
Despite the diplomatic signals, some market analysts remain skeptical about how quickly a deal could be reached. They note that tensions remain extremely high and that the conflict has already significantly disrupted global energy supplies.
Priyanka Sachdeva, senior market analyst at Phillip Nova, said developments in the Middle East will likely remain the dominant factor driving oil prices in the near term. She expects prices to continue moving within a wide and volatile range as markets respond to both military actions and diplomatic developments.
The conflict has severely affected shipments through the Strait of Hormuz, the narrow waterway linking the Persian Gulf to the global market. Normally, the strait handles about one-fifth of the world’s oil and liquefied natural gas exports. The disruption has forced tankers to halt or reroute shipments, creating what the International Energy Agency has described as the largest oil supply disruption ever recorded.
Energy analysts say the market could remain tight even if a ceasefire agreement is announced soon. Saul Kavonic, head of energy research at MST Marquee, noted that restarting oil production and shipping flows is not an immediate process.
He explained that even if the strait reopens this week, it could take time before producers fully restore shut-in production and shipping companies regain confidence that the ceasefire will hold. Companies may wait for clearer signs of long-term stability before returning to normal operations.
Diplomatic efforts to de-escalate the crisis are expanding beyond Washington and Tehran. Pakistan’s prime minister said on Tuesday that his country is willing to host negotiations between the United States and Iran in an effort to help bring the conflict to an end.
Meanwhile, Iran has sent a message to the United Nations Security Council and the International Maritime Organization indicating that vessels considered “non-hostile” may be allowed to transit the Strait of Hormuz if they coordinate their movements with Iranian authorities. The statement suggests Tehran may be open to limited shipping access while negotiations continue.
Despite these diplomatic signals, military operations in the region have not stopped. Strikes involving U.S., Israeli, and Iranian forces have continued, and sources say Washington is preparing to deploy additional troops to the Middle East to strengthen its presence in the region.
Energy producers are also looking for ways to reduce the impact of the disruption. Saudi Arabia has increased oil shipments through alternative export routes, including its Red Sea port of Yanbu. Shipping data indicates exports from the port rose to nearly 4 million barrels per day last week, a significant increase compared with levels before the conflict began.
In the United States, rising domestic fuel inventories have also helped ease some pressure on prices. Market sources citing data from the American Petroleum Institute said U.S. crude oil, gasoline, and distillate stockpiles all increased last week, suggesting that supply levels remain relatively comfortable for now.
Even with the latest drop in prices, analysts warn that the global oil market remains extremely sensitive to developments in the Middle East. As long as uncertainty surrounds the Strait of Hormuz and the broader regional conflict, traders expect oil prices to remain highly volatile, with sharp swings likely to continue in response to both diplomatic breakthroughs and military escalations.
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