Brent Crude: Diplomatic Progress Weighs on Prices — OCBC

Brent crude prices extended their recent decline, trading around $84.78 per barrel, after breaking below the psychological threshold of $90 per barrel. OCBC strategists Shen Mu Xiong and Christopher Wong noted that improved prospects for shipping through the Strait of Hormuz, along with diplomatic progress involving Iran and Oman, are easing market concerns over crude supply disruptions, serving as the main factor dragging on oil prices.

**Diplomatic Signals Weaken Supply Risk Premium**

According to reports, a senior Pakistani military delegation recently visited Tehran as part of efforts to de-escalate regional tensions, bringing proposals for the potential lifting of sanctions under the existing memorandum of understanding framework. Meanwhile, the latest US economic pressure measures against Iran have been lighter than market expectations. US Treasury Secretary Scott Bessent stated that countries trading with Tehran would be given a deadline to end such ties or face unilateral sanctions. Markets are closely watching whether this strategy will materially impact oil flows through the Strait of Hormuz or heighten tensions with China, a key buyer of Iranian crude.

**Oil Prices Retreat Notably from Recent Highs**

Earlier, Brent crude had already fallen 3% to around $89.5 per barrel on Tuesday, extending the previous session's decline. Market reports indicated that the prospect of a potential diplomatic breakthrough between Iran and the US was the main catalyst triggering this round of selling. Although investors remain uncertain about subsequent developments, the cooling of supply concerns in the near term has prompted oil prices to retreat from near multi-year highs. According to model projections from Trading Economics, analysts' average price expectation for Brent crude at the end of this quarter is around $96.11 per barrel, but current actual trading levels are clearly below that estimate.