Oil Falls As Traders Digest Escalation In US-Iran Strikes

Oil prices fell on Thursday, following earlier gains triggered by the recent escalation of hostilities between the U.S. and Iran, as traders assessed the actual impact on supply disruptions. 

Tehran declared the Strait of Hormuz closed after the U.S. launched additional strikes against Iran and as President Donald Trump vowed even more attacks if no peace deal is secured.

Still, three Iranian sources informed that efforts to reach a preliminary deal between the two countries have intensified, despite strikes launched by both sides, as they discuss a mechanism over releasing frozen Iranian funds.

Weaker Chinese fuel demand is also helping to contain the Iran-driven oil rally, with falling gasoline and diesel use, as well as lower crude imports, dampening global price pressure.

Brent futures fell 53 cents, or 0.6%, to $92.57 a barrel by 0941 GMT, while U.S. West Texas Intermediate (WTI) crude lost 36 cents, or 0.4%, to $89.67. Both contracts gained more than $2 earlier in the session.

Iran's joint military command announced the closure of the Strait including oil tankers and commercial ships, saying any vessel attempting passage will be shot at.

"The latest escalation adds uncertainty to already fragile ceasefire negotiations and risks prolonged supply disruptions that have constrained global crude, fuel, and LNG exports since the conflict began," MUFG analyst Soojin Kim said.

Commercia Ships Continue To Transit

There were signs, however, that supply conditions might not be as dire as feared by many.

On Wednesday, the U.S. military said on X that commercial ships continued to transit in and out of the Strait. It also said no U.S. warships have been struck in the Strait, after Iran's state media reported U.S. ships near the waterway were targeted by missiles and drones.

Three more LNG tankers have slipped out of the Strait of Hormuz with transponders off, heading to Asia, though the timing is unclear, LSEG and Kpler data show.

While India reported an incident involving a vessel off Shinas port in Oman earlier Thursday, a third of its kind this week, Indian refiners told Reuters on Thursday they had secured enough crude to meet their needs through at least August.

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Abu Dhabi National Oil Co (ADNOC) and some other sellers managed to export some crude and offered some to buyers in Asia.

Meanwhile, U.S. crude inventories fell by 7.2 million barrels to 426.5 million in the week ended June 5, the EIA said on Wednesday, compared with analysts' expectations in a Reuters poll for a 4 million-barrel draw.

Underscoring the squeeze, OPEC output in May slid to its lowest level in over two decades, a Reuters survey showed, as the US naval blockade curbed Iran's exports and Tehran's effective closure of the strategic waterway slashed shipments from other Gulf producers.