Oil Extends Decline as Iran, Oman Discuss Temporary Shipping Route in Strait of Hormuz

Oil extended its decline as Iran and Oman moved to establish a temporary maritime route to resume vessel traffic through the Strait of Hormuz.

West Texas Intermediate traded below $81 a barrel on August 25, according to Bloomberg. WTI has fallen about 6% over the past three trading sessions. Brent settled below $89 a barrel a day earlier.

Hopes for easing tensions around the Strait of Hormuz weighed on prices. Oman News Agency said Iranian Foreign Minister Abbas Araghchi and Omani Foreign Minister Badr Albusaidi discussed creating a "temporary joint maritime route" to restart shipping traffic.

The two countries plan technical talks on a permanent sea route and on how traffic through the Strait of Hormuz would be managed. The negotiations also cover a framework for vessel traffic control, information sharing, and maritime and security services. Iran's semi-official Tasnim News Agency said the two sides had agreed on the temporary route and would hold talks over the next 30 to 60 days on establishing a permanent corridor.

Traders are also watching whether the discussions could help ease tensions between the US and Iran. Dennis Kissler, senior vice president at BOK Financial Securities, said the oil market appears to be starting to price in the possibility of a peace deal sooner than expected. With both sides seeking an exit strategy, a new phase of de-escalation may be emerging.

The limited scope of US sanctions on Iran also reduced the risk premium in oil prices. Washington had announced stronger economic pressure on Tehran, but did not immediately impose secondary sanctions on major trading partners including China, the biggest buyer of Iranian crude. Separately, the American Petroleum Institute said US crude inventories rose by 4.2 million barrels last week. If confirmed by official data, that would mark a fourth straight weekly increase.