Oil prices fell on Thursday as hopes of renewed peace talks between the United States and Iran eased fears of possible disruptions to global oil supplies. However, tensions in the Middle East continue to create uncertainty over oil production and shipments.
Brent crude futures fell 1.73% to $113.32 per barrel on Thursday. US West Texas Intermediate (WTI) crude futures also declined, dropping 2.06% to $100.66 per barrel, according to CNBC.
US-Iran peace talks
Oil prices fell after reports said US Vice President JD Vance had contacted Mohsen Rezaei, head of Iran’s Security Council, to restart peace talks. The Wall Street Journal reported this, citing US officials and people familiar with the talks.
Qatari mediators have also reportedly предложed a new plan to end the conflict involving Iran, the US and Israel. The plan aims to help the countries reach a peace deal, according to Reuters.
However, a senior Iranian official rejected the proposals, calling them unacceptable, Reuters reported. This shows that the countries still have major differences, making a peace deal difficult to reach.
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Iran’s foreign minister said on social media platform X that Tehran remained open to diplomatic efforts. He also raised the possibility of speeding up a proposed seven-day peace plan if an agreement could be reached. This has kept hopes of a possible diplomatic breakthrough alive.
Oil supply concerns
Despite hopes for peace talks, investors are still concerned about possible attacks by Yemen’s Houthi movement and the prospect of US military action against Iran. The Associated Press reported that the possibility of US strikes could remain a concern following the November 3 midterm elections.
The ongoing threat of disruptions to oil supplies has kept crude prices high. Expensive oil can increase transport, manufacturing and other business costs, putting pressure on prices across the economy. These inflation concerns also make it harder for central banks to decide whether to cut or raise interest rates.
Oil prices and US inflation
José Torres, senior economist at Interactive Brokers, said in a note late Wednesday that expensive crude oil remained the main factor pushing inflation above the target level. However, he added that broader price pressures had remained relatively contained, according to CNBC.
Torres said inflation pressures concentrated in the energy sector supported a more patient approach from the US Federal Reserve. This is particularly important because underlying inflation, which reflects price trends beyond temporary or volatile changes, remained relatively subdued.
Federal Reserve interest rate outlook
Torres suggested that raising interest rates too sharply in response to an oil supply shock could weaken employment and worsen credit risks. Higher interest rates increase borrowing costs for households and businesses, potentially slowing economic activity.
Torres said a geopolitical resolution could be close, potentially easing inflationary pressures. If tensions decline and oil prices fall, the Federal Reserve may face less pressure to raise interest rates further, according to CNBC.
Torres added that a decline in WTI crude prices towards $70 per barrel could significantly strengthen the case for eventual interest-rate cuts. However, this would depend on how oil prices, inflation and other economic conditions develop.