Oil prices edged lower on Thursday as investors reacted positively to the implementation of a ceasefire agreement between Israel and Lebanon, raising hopes that wider tensions in the Middle East could ease. The development fueled expectations that ongoing diplomatic efforts involving the United States, Israel, and Iran may eventually lead to a broader regional agreement, reducing concerns over disruptions to global energy supplies.
Brent crude futures fell 67 cents, or 0.69%, to $97.14 per barrel during early trading, while U.S. West Texas Intermediate (WTI) crude declined 62 cents, or 0.65%, to $95.40 per barrel. The pullback followed a strong rally on Wednesday when both benchmarks gained nearly 2% amid renewed hostilities in the region, including Iranian attacks on Kuwait and U.S. military operations near the strategically important Strait of Hormuz.
Market sentiment improved after reports suggested progress in diplomatic contacts aimed at reducing tensions. U.S. President Donald Trump indicated that negotiations with Iran could show meaningful progress as early as this weekend. Investors viewed the comments as a sign that a political solution may be possible, easing fears of a prolonged conflict that could threaten oil shipments through key regional routes.
In Washington, political developments also drew attention after the Republican-led U.S. House of Representatives approved a resolution seeking to limit President Trump’s authority to continue military action against Iran. While the measure still faces major hurdles, including Senate approval and the likelihood of a presidential veto, traders interpreted it as another indication that pressure is growing for a diplomatic resolution rather than further escalation.
Iranian Foreign Minister Abbas Araqchi stated that communication channels between Tehran and Washington remain open, although he acknowledged that no significant breakthrough has yet been achieved. He said both sides are reviewing exchanged proposals, suggesting that negotiations are still active despite ongoing differences over key issues.
Meanwhile, oil prices found support from strong demand signals in the United States. The U.S. Energy Information Administration reported that crude inventories fell by 8 million barrels to 433.7 million barrels during the week ending May 29. The decline was significantly larger than analysts’ expectations of a 4-million-barrel draw, indicating tighter supply conditions. Market analysts believe shrinking global inventories could continue supporting crude prices despite recent diplomatic progress, with some forecasting prices to remain near the upper end of their current trading range.
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