By Scott DiSavino
July 28 (Reuters) – Oil prices dropped about 5% on Tuesday to a two-week low, on cautious hopes that the pause in fighting between the United States and Iran will lead to talks to end the war, even though previous halts have proved only temporary.
Brent futures fell $4.27, or 4.8%, to settle at $84.09 a barrel, while U.S. West Texas Intermediate (WTI) crude fell $3.35, or 4.1%, to settle at $79.26.
After dropping about 16% over three days, Brent closed at its lowest since July 13 and WTI at its lowest since July 16.
Even though the two sides have stopped attacking each other, they are far from resolving their differences that led to the effective closure of the Strait of Hormuz, which prior to the war was used to transit about a fifth of global oil supplies.
Iran has denied seeking to resume talks with the U.S., contradicting statements from U.S. President Donald Trump, who reported that there are “good talks” underway. Trump has made such statements on numerous occasions — coupled with threats to renew strikes — but the Iranians have held firm.
Oman presented Iran with a plan backed by Gulf states to manage the Strait of Hormuz, including collecting voluntary fees for using it, a Gulf source and a Western diplomat told Reuters. It was meant to serve as a basis to end the disruption to trade through the strait caused by the war.
Iran, however, rejected the Omani plan and proposed to Oman a temporary arrangement to reopen the Strait of Hormuz under which one direction of traffic would pass through Iranian waters and part of the opposite route would also be in Iranian waters, Deputy Foreign Minister Kazem Gharibabadi told state television on Tuesday.
“The market understands the situation is a mess and is trading lower because the two belligerent parties (the U.S. and Iran) have not attacked each other in the past few days,” Bob Yawger, director of energy futures at Mizuho, said in a report. He noted the ongoing lack of ship traffic through the Strait of Hormuz and shooting in the Red Sea by the Iran-backed Houthi militia in Yemen.
SAUDI ARABIA AND UKRAINE
Saudi Aramco shut down its 400,000-barrel-per-day Jizan oil refinery in Saudi Arabia on July 27 following an attack by the Houthis on Saturday, a note from consultancy IIR seen by Reuters showed.
The Houthis have disrupted shipping through the Bab el-Mandeb Strait linking the Red Sea to the Gulf of Aden, creating a second chokepoint for oil flows. Saudi Aramco has considered a new pricing mechanism for crude loading from Egypt’s Sidi Kerir port for Asia to reflect higher shipping costs after re-routing exports through the Suez Mediterranean pipeline.
On Monday, 28 vessels passed through the Bab el-Mandeb, a four-day high, while traffic through the Strait of Hormuz remained low, according to Kpler shipping data.
The Houthis said on Tuesday that they had fired ballistic missiles at a Saudi oil tanker. China, meanwhile, has held direct talks with the Houthis to enable its tankers to sail through the southern Red Sea without being attacked.
Beyond the Middle East, Ukrainian President Volodymyr Zelenskiy said he and Trump had discussed reinvigorating peace talks with Russia.
A settlement in the Ukraine war could result in the lifting of some sanctions on Russia, which could allow Moscow to export more oil. Russia was the world’s third-biggest crude oil producer behind the U.S. and Saudi Arabia in 2025, according to U.S. energy data.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies like Russia, known collectively as OPEC+, will likely pause oil output increases for three months from October, sources said, after it completes the scheduled return to the market of barrels from voluntary cuts and as it faces potentially difficult talks over new production quotas.
(Reporting by Scott DiSavino in New York, Anushree Mukherjee and Ishaan Arora in Bengaluru and Siyi Liu in Singapore; Additional reporting by Stephanie Kelly in London; Editing by Alexandra Hudson, Jan Harvey, Will Dunham, Louise Heavens, David Gregorio and David Gaffen)
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