Oil Prices Fall as Middle East Ceasefire Hopes Rise

Oil prices declined on Wednesday, extending their weekly losses as signs of diplomatic progress in the Middle East raised hopes that hostilities could ease and the Strait of Hormuz could gradually reopen to commercial shipping.

Brent crude futures for November delivery fell 0.9% to settle at $86.47 a barrel, while U.S. West Texas Intermediate (WTI) crude futures for October dropped 0.6% to $81.83 a barrel.

Crude briefly reversed losses after reports suggested Russia could intensify military operations in Ukraine as prospects for a negotiated peace agreement fade. Bloomberg reported that Moscow was considering stronger conventional ballistic missile attacks on Kyiv and infrastructure in other Ukrainian cities.

The Russia-Ukraine war remains a significant risk for global energy markets. Ukraine has recently carried out long-range drone attacks targeting Russian energy infrastructure, reportedly damaging refining capacity and logistics facilities.

Middle East developments, however, remained the main driver of oil prices. Crude plunged more than 5% on Tuesday after Russian state media reported that the United States and Iran were nearing a new ceasefire agreement. The potential deal reportedly includes provisions allowing free navigation through the Strait of Hormuz.

Pakistan, which has played a key mediation role between Washington and Tehran, said progress had been made in talks aimed at restoring an interim ceasefire framework.

Separately, Iran and Oman reportedly agreed to establish a temporary shipping route through the Strait of Hormuz following diplomatic discussions in Tehran. Iran has indicated that a full reopening would depend on the U.S. fulfilling commitments under an earlier framework agreement.

The Strait of Hormuz is one of the world's most important energy chokepoints, carrying roughly one-fifth of global oil and liquefied natural gas supplies before the conflict disrupted shipping.

Tanker traffic remains sharply reduced. Preliminary Kpler data cited by CNBC showed only five commodity vessels crossed the strait on Tuesday, compared with a 10-day moving average of 15.

Despite hopes for improved shipping conditions, analysts caution that geopolitical risk will likely remain embedded in oil prices as uncertainty persists over Iran, U.S. sanctions and the Russia-Ukraine conflict.