Oil Plunges Below $90 as Iran Optimism Fuels Supply Relief Hopes

Oil prices tumbled on Wednesday, with Brent crude falling below the key $90 threshold for the first time in a week as a series of diplomatic signals pointed to a possible easing of the conflict that has disrupted supplies from the Persian Gulf for nearly six months.

Brent dropped more than 3%, touching an intraday low of $84.56 a barrel before settling at $86.94, according to a report from The Associated Press. The decline was the latest leg in a weekly drop that has seen the benchmark fall over 6%, as traders unwind what analysts describe as a war-risk premium built up since the US-Iran conflict erupted in late April.

**Diplomatic Breakthrough in the Gulf**

The selloff accelerated after a New York Times report, cited by ZeroHedge, stated that "evacuated foreign service officers could begin heading back to their posts as early as this week... suggesting Washington does not anticipate a renewal of full-scale conflict with Iran." Oil was also lower on positive signals from Pakistan’s army chief, with Al-Arabiya reporting that he carried an offer to lift sanctions under a memorandum of understanding.

Separately, Iran’s military said it had reached a revenue-sharing agreement with Oman concerning navigation through the Strait of Hormuz, according to NDTV Profit. While Tehran stressed the deal does not guarantee an immediate reopening of the waterway, the development strengthened expectations that energy flows through the critical chokepoint could improve. The Times of India reported that Qatar’s prime minister was due to travel to Iran on Thursday to revive diplomatic talks aimed at ending the nearly six-month-old conflict.

**Supply Flows Recovering**

Kuwait and Qatar are restoring crude exports through the Strait of Hormuz, Bloomberg reported, citing sources familiar with energy flows. The two producers are shipping about 70% of the combined 2 million barrels a day they exported before the war, ZeroHedge noted. Total oil shipments via tankers through the strait have climbed to between 7 million and 8 million barrels a day, up from roughly 4 million barrels a day in mid-July and equal to about 75% of prewar levels.

London-based energy and freight analytics firm Vortexa told clients that the estimated seven-day average for oil transiting the strait has approached 10 million barrels a day, according to ZeroHedge. Meanwhile, maritime research firm TankerTrackers reported a surge in ship-to-ship transfers in the Gulf of Oman, counting 25 million barrels of crude oil being transferred. The NDTV Profit report also cited US President Donald Trump saying that 10 million barrels of oil exited Hormuz on Tuesday.

**Markets React: Equities Rise, Yields Fall**

The oil slide rippled through global markets. S&P 500 futures climbed 0.4%, while Nasdaq 100 futures advanced 0.9%, leading a reversal of the prior session’s cash performance, ZeroHedge reported. The drop in crude prices added support to risk sentiment as bond yields eased, with the 10-year US Treasury yield declining four basis points.

In premarket trading, technology and semiconductor stocks led gains. Nvidia was poised to snap its longest losing streak since 2022, rising 0.9%, while Micron climbed 2% and Seagate gained 2%, according to ZeroHedge. The AI theme lifted cyclical sectors ex-energy, which outperformed defensive stocks. The Associated Press noted that the overall stock market remained near its all-time high, with the S&P 500 edging down just 0.1% on Wednesday in quiet trading ahead of Nvidia’s earnings report.

**Inflation and Fed Outlook**

The drop in oil prices carries implications for inflation, which had been worsened by higher energy costs. The US Treasury market has been under pressure through the summer on worries about high inflation and the government’s growing debt, The Associated Press reported. The 10-year yield stood at 4.65% after Wednesday’s data showed inflation at 3.7%, slightly above expectations but unchanged from June.

Traders are now looking ahead to Friday’s speech by Federal Reserve Chair Kevin Warsh, his first major address as Fed chief. ZeroHedge cited Laura Cooper, global investment strategist at Nuveen, saying investors await "clarity on the Fed’s reaction function and the potential need for a September hike."

**Analyst Views on Oil Outlook**

UBS analyst Justinus Steinhorst wrote in a note that "an Iran-Oman framework for a 'temporary joint maritime corridor' is pulling oil lower," though he questioned how the US would sign off given the concurrent ratcheting up of economic pressure, ZeroHedge reported. Dennis Kissler, senior vice president for trading at BOK Financial Securities, said "it seems crude is now beginning to price in a sooner-rather-than-later peace deal."

The US Energy Information Administration raised its Brent crude forecast to average around $85 a barrel in the third quarter of 2026, $11 higher than its previous estimate, according to a note cited by Business Standard. The EIA expects prices to ease once Hormuz traffic recovers and shut-in production resumes, forecasting Brent to average $78 in the fourth quarter.

Rabobank has a more bullish view, raising its Brent forecast to $90 a barrel for both the third and fourth quarters, Business Standard reported. Analysts Joe DeLaura and Florence Schmit said August has brought a new equilibrium but see little progress toward resolving broader tensions. They expect Brent to remain volatile, with $70-$75 acting as lower support and $95-$100 as the upper end, though renewed disruptions could push prices above $100.

**Risks Remain**

Despite this week’s retreat, oil remains more than 40% higher this year, reflecting six months of supply disruption. The conflict has also created a crude-products crisis, with diesel crack spreads in the US still trading above $90 a barrel, ZeroHedge reported. US distillate inventories fell by 2.2 million barrels in the week to August 21, reaching their lowest seasonal level on record, according to the EIA as cited by The Times of India.

Escalating Russia-Ukraine tensions could tighten global energy markets further, NDTV Profit reported, with Ukrainian strikes on Russian refineries and ports disrupting fuel production. The conflicting signals have left oil markets caught between the prospect of more Middle Eastern supply returning and fresh disruptions to Russian exports.

The Daily Sabah noted that the closing of the Strait of Hormuz has also disrupted fertilizer shipments and contributed to a rise in food prices to a more than three-year high in July, according to the UN Food and Agriculture Organization. The FAO has warned the world could be heading towards another bout of food inflation.