Oil drops below $100 as US-Iran deal hopes ease pressure on markets

Dubai: Oil prices dropped below $100 on Wednesday as traders responded to signs that the US and Iran could be moving closer to a framework agreement to pause the conflict and reopen a path to wider negotiations.

Brent crude was down 9.93% at $99.94 a barrel at 2:50 pm, while West Texas Intermediate fell 10.54% to $91.73. The move marked a sharp reversal from the war-risk rally that had pushed energy costs higher and raised concerns about the impact on consumer prices, freight costs and transport-heavy sectors.

Markets are now pricing in the possibility that Washington may not sustain an open-ended confrontation with Iran if elevated oil prices continue feeding into inflation, credit conditions and transport costs. Reports of a possible one-page memorandum between the US and Iran have shifted attention from immediate escalation to whether diplomacy can hold.

Iranian Foreign Minister Abbas Araghchi said during a visit to China that Tehran would only accept “a fair and comprehensive agreement” in talks with the US over ending the conflict in the Middle East.

His comments came after an earlier round of Pakistan-mediated talks failed to produce follow-up meetings, with both sides holding firm to their positions. Araghchi arrived in Beijing on Wednesday for talks with China’s top diplomat Wang Yi, according to Iranian news agencies Tasnim and Fars.

Konstantinos Chrysikos, Head of Customer Relationship Management at Kudotrade, said oil had extended its decline because markets were reacting to “growing expectations that diplomatic efforts between the United States and Iran could eventually lead to a broader easing of tensions in the Middle East.”

He said reassuring signals from Washington had improved sentiment, while reports that an agreement could be reached soon had raised hopes that supply trapped in the Gulf may return to global markets.

The decline in prices does not mean the physical market has returned to normal. The Strait of Hormuz remains central to the oil market’s next move because ship traffic is still constrained and supply flows remain exposed to disruption.

Tensions escalated earlier this week after US President Donald Trump announced “Project Freedom”, an effort to guide vessels out of the Strait of Hormuz. Iran announced an expanded area around the strait that it claims it controls and was reported to have attacked an oil port in the UAE.

Trump has since halted the operation, a move that helped cool immediate fears of a wider confrontation.

Vijay Valecha, Chief Investment Officer at Century Financial, said “President Trump also halted the Operation Freedom that was launched on Monday to reduce the probability of further hostilities between the US and Iran. This is likely done to give both parties breathing room to work out a potential deal.”

He added that the pullback in oil was being driven more by sentiment than by a clear improvement in supply conditions.

“However, the blockade on Iranian oil exports remains, and ship traffic through the Strait is still constrained. This indicates there is no meaningful change in the ongoing supply disruption, and oil prices are lower, mostly on positive sentiment around possible de-escalation. Even if there are some de-escalation headlines, the supply recovery is inherently delayed,” Valecha said.

Chrysikos also said maritime constraints remain in place, which keeps the physical market tight despite the fall in prices.

“However, constraints on maritime flows remain in place, leaving the physical market in a state of tightness. In addition, any normalization is likely to be gradual,” he said.

That leaves oil markets vulnerable to another swing if talks stall or if shipping incidents continue in the Strait of Hormuz. A cargo vessel was struck by an unknown projectile in the waterway, the United Kingdom Maritime Trade Operations said, showing that security risks have not disappeared from the market.

“Looking ahead, oil markets are likely to remain highly exposed to renewed volatility in the case of a setback, while market participants could remain cautious ahead of any new developments. While optimism around an agreement could maintain downward pressure on prices in the near term, failure to reach an agreement or renewed tensions could quickly reverse the recent decline,” Chrysikos said.

The oil sell-off also comes before official US inventory data, which could shape the next move in prices.

Valecha said American Petroleum Institute data showed US crude inventories fell by 8.1 million barrels last week, which would be the biggest draw since mid-February if confirmed by the Energy Information Administration.

That draw matters because it suggests supply remains tight even while prices are falling on diplomatic hopes. A confirmed inventory drop could limit the downside for oil if traders decide that the physical market remains strained.

On technical levels, Valecha said WTI faces initial resistance at $104 to $106, with a break above that range opening the way toward $110. Support is likely around $98 to $100, including the 20-day exponential moving average, while a break below that zone could put $95 in view.

- With inputs from agencies.