Oil prices declined on Tuesday as traders weighed reports of renewed diplomatic initiatives between the U.S. and Iran against recent military exchanges and threats from Yemen’s Houthis regarding a naval blockade of Saudi Arabia. Brent crude futures declined by 35 cents, representing a 0.4% decrease, settling at $88.87 per barrel. Meanwhile, U.S. West Texas Intermediate crude for September delivery remained relatively stable at $82.47 per barrel. Both benchmarks stayed beneath the highs reached over the past month in the previous session. On Monday, Yemen’s Iran-backed Houthis declared intentions to implement a naval blockade on Saudi Arabia, which could potentially create an additional front in the ongoing conflict involving the U.S. and Iran. This development raises significant concerns regarding potential disruptions to global energy supplies and trade extending beyond the Gulf region.

Concurrently, a high-ranking Iranian official informed Reuters that Tehran had been presented with a proposal from mediators advocating for a 10-day ceasefire. The proposal is part of efforts to preserve the interim agreement signed on June 17, which aimed to create a pathway to a permanent deal to end the conflict that began on February 28 following U.S.-Israeli attacks on Iran. The diplomatic initiative emerged following yet another night of U.S. strikes targeting Iranian cities, alongside retaliatory actions by Iran’s Revolutionary Guards against U.S. military assets throughout the region. Later on Monday, U.S. Central Command announced that it had initiated another series of strikes on Iran. Goldman Sachs indicated that Brent crude might exceed $110 a barrel in the fourth quarter, contingent upon the continued delay in the recovery of Gulf oil exports.

However, the investment bank anticipates a decline in prices, projecting a return to the $60s by year-end, contingent upon a reduction in geopolitical tensions and a quicker-than-expected rebound in production. At this juncture, there are no indications of a ceasefire forthcoming. However, should a ceasefire be imposed immediately, we do not anticipate Brent oil prices declining below $70 per barrel. “It is likely to remain the lower support for the near term,” Pranav Mer told. According to Anindya Banerjee, “Any strike on major Gulf export infrastructure could force a retest of $95-100 and beyond,” he said. Banerjee noted that market responses are increasingly influenced by the waning prospects for diplomatic solutions rather than the military actions themselves.

He stated that Tehran has established new conditions for the resumption of negotiations, with each subsequent development delaying the restoration of normal tanker movement through the Strait of Hormuz, where traffic has consistently remained significantly below pre-war levels. Nuvama Institutional Equities cautioned that a prolonged closure of the Strait of Hormuz could impede the movement of approximately 20 million barrels of crude oil per day. Under such a scenario, the broking indicated that oil prices could rise to a range of $110 to $150 per barrel.