Oil Extends Drop as Iran, Oman Near Deal on Strait of Hormuz Bypass Route

Oil prices extended their decline as Iran and Oman moved closer to an agreement on a shipping route bypassing the Strait of Hormuz.

According to Bloomberg on August 5, West Texas Intermediate traded around $75 a barrel. Brent had settled above $79 a barrel the previous day. WTI is down about 11% over the first three trading days this week.

Iran's government said it had reached a preliminary agreement with Oman on a new shipping route involving passage through the Strait of Hormuz. A joint statement from the two countries is under final review, and the new route would operate for two to four months. Iran added that the plan does not amount to a full reopening of the strait.

President Donald Trump, speaking at a campaign rally in Las Vegas on August 5, said the US is in talks with Iran and will see how the negotiations turn out.

The prospect of a partial resumption in crude shipments through the Strait of Hormuz is weighing on oil prices. Still, with tensions in the Middle East unresolved, investors remain cautious about geopolitical risks and have not broadly unwound existing long positions.

Rob Thummel, senior portfolio manager at Tortoise Capital, said global oil prices could fall to about $70 a barrel if an agreement with Iran is reached.

Separately, Yemen's Houthi rebels claimed they attacked a Saudi tanker in the Gulf of Aden and continued to threaten other vessels traveling through the Red Sea. US crude inventories also rose again, while oil loadings at the Black Sea terminal of the Caspian Pipeline Consortium, a key outlet for Kazakhstan's crude exports, were reportedly disrupted by a nearby drone alert.