Oil prices declined on Thursday as investors considered indications of advancement in negotiations between Iran and Oman, which may pave the way for a peace agreement between the U.S. and Iran. This development could potentially bring an end to the five-month conflict and facilitate the reopening of the Strait of Hormuz. Brent crude futures declined by 37 cents, representing a 0.5% decrease, settling at $79.08 per barrel. In parallel, U.S. West Texas Intermediate crude futures experienced a drop of 53 cents, equivalent to a 0.7% reduction, closing at $74.69 per barrel. Brent concluded the trading session with a modest increase on Wednesday, while WTI experienced a slight decline. A proposed agreement between Iran and Oman, intended to resolve the U.S.-Iran conflict, would grant Tehran authority over vessels entering the Gulf via the Strait of Hormuz, according to a senior Iranian source on Wednesday.

The proposal represents a significant concession made to Iran to date. US President Donald Trump has indicated that a deal to reopen the strait is imminent, despite US officials’ steadfast position against allowing Iran to control access to this critical energy trade route. Iran has issued a warning to Gulf states that any new U.S. attack on its territory would result in retaliation targeting critical energy infrastructure throughout the region. The warning is perceived as a strategy by Tehran to increase the costs associated with military action by targeting Washington’s nearest regional allies. On Wednesday, Yemen’s Iran-aligned Houthis announced that they had executed missile strikes targeting a Saudi oil tanker close to the Red Sea port of Yanbu, as well as another Saudi oil tanker in the Gulf of Aden.

Saudi Arabia has yet to provide confirmation regarding either incident. The risk of Houthi attacks disrupting shipping in the Red Sea continues to dampen optimism regarding a more comprehensive recovery in Middle East shipping routes. The outlook for oil prices remains contingent upon the duration of ongoing supply disruptions. JPMorgan posits that each extra month of disruption may elevate Brent crude prices by approximately $7 to $8 per barrel. If the disruption extends to three months, the bank anticipates average monthly Brent prices to approach approximately $114 per barrel. Goldman Sachs has also warned that Brent may reach $120 a barrel if disruptions to shipping through the Strait of Hormuz, the world’s most critical oil transit route, persist.

Goldman Sachs’ base case posits that, notwithstanding the associated risks, tensions in the Middle East are expected to eventually subside. Under that scenario, the bank anticipates that Brent will average $80 a barrel in the fourth quarter and $75 a barrel in the following year. However, it stated that the risks to its forecast remain tilted towards the upside, referencing the potential for ongoing disruptions in the Strait of Hormuz and the Red Sea. “The direction of our outlook is unchanged; the path and the timeline have shifted. We still expect oil to cool as we move into 2027, for three reasons: supply outside the conflict zone is expanding, with OPEC+ raising production targets, the UAE at record output and non-OPEC barrels responding to price,” said Anindya Banerjee.