WTI Falls Below $81.50 Amid Middle East Diplomatic Efforts

During Thursday's Asian session, WTI crude oil futures retreated to around $81.94 per barrel, giving back the modest gains from the previous trading day. The main pressure on oil prices came from signs of progress in diplomatic efforts in the Middle East, which eased market concerns over supply disruption risks.

**Diplomatic mediation advances, supply risk premium retreats**

Reports indicate that the United States is attempting to ease tensions with Iran through diplomatic channels, a development that overshadowed news of additional U.S. troop deployments to the region. According to sources familiar with the matter, Washington has drafted a 15-point plan aimed at helping end the conflict, which was delivered to Iran via Pakistan. Additionally, internal State Department documents show that the U.S. is preparing to return American diplomats previously evacuated due to the Iran conflict to their embassies across the Middle East—a signal interpreted by markets as a de-escalation of tensions. Robert Rennie, head of commodity research at Westpac, noted that the U.S.-Iran situation has shifted from a potentially "devastating" phase to one of negotiating a deal, though the process of reaching a final agreement could be complex given the lack of trust between the two sides.

**Improved expectations for Strait of Hormuz navigation**

The Strait of Hormuz, a critical global oil transit chokepoint, has remained a key market focus regarding navigational safety. U.S. President Trump said on the 25th that all mines in the "international waters" of the Strait of Hormuz have been cleared or detonated. As ceasefire diplomatic talks progress, markets expect the Strait of Hormuz to potentially reopen, further eroding the geopolitical risk premium on crude oil. The previous day, Russian media cited sources reporting that the U.S. and Iran were close to reaching a new ceasefire agreement, sending oil prices down more than 5% in a single session.

**Market sentiment turns cautious**

Despite the positive diplomatic signals, analysts caution that the lack of mutual trust between the U.S. and Iran could make the negotiation process fraught with setbacks. U.S. Secretary of State Marco Rubio recently told several allied foreign ministers that Washington does not expect to launch new strikes against Iran for now, with the current focus shifting to other pressure tools, including economic sanctions. Overall, the marginal easing of geopolitical tensions is dominating short-term oil price direction, but uncertainty remains over the subsequent progress of negotiations.