Oil prices fall after Israel-Lebanon ceasefire lifts hopes of wider regional deal

LONDON: Oil prices moved lower on Thursday after Israel and Lebanon said they had agreed to implement a ceasefire, easing some concerns in energy markets and raising hopes that broader diplomacy could help reopen the Strait of Hormuz.

Brent crude futures were down 87 cents, or 0.89%, at $96.92 a barrel by 0458 GMT, while US West Texas Intermediate crude fell 78 cents, or 0.81%, to $95.24. The decline trimmed gains made earlier in the week.

Both benchmark contracts had climbed about 2% on Wednesday amid renewed tensions in the Middle East, including Iranian attacks on Kuwait and US military strikes near the Strait of Hormuz.

Ceasefire raises hopes for Iran talks

Israel and Lebanon said late on Wednesday they had agreed to put a ceasefire in place, a development that strengthened expectations of a possible agreement between Washington and Tehran. Iran had linked any deal in part to an end to the fighting between Israel and Lebanon.

US President Donald Trump said on Wednesday there could be movement in negotiations with Iran as soon as this weekend. Iranian Foreign Minister Abbas Araqchi said the lines of communication with Washington remained open, but added that no progress had been achieved and that both sides were reviewing exchanged texts.

In the United States, the Republican-led House of Representatives passed a resolution on Wednesday seeking to stop Trump from continuing the war against Iran. The measure would still require Senate approval, and two-thirds majorities in both chambers would be needed to override an expected Trump veto.

Supply concerns remain in focus

Market attention was also on US supply data. The Energy Information Administration said on Wednesday that US crude inventories fell by 8 million barrels to 433.7 million barrels in the week ended May 29. That drop was far larger than the 4-million-barrel decline analysts had expected in a Reuters poll.

The International Energy Agency warned on Tuesday that global oil stocks could reach critical levels ahead of peak summer demand if current inventory draws continue, even though Chinese crude imports in May were down by 6 million barrels a day from March.

ING said inventories had helped cushion the market, but warned that even if oil transit through the Strait of Hormuz resumes soon, the rebound would not be immediate.

"Inventories have provided a cushion for the oil market. However, even if we see an imminent restart of oil flows through the Strait of Hormuz, the recovery will be slow and gradual,"

In the same note, ING added that tightening inventories were likely to persist into the third quarter, leaving the market exposed to further upside risks in prices.

"This suggests inventories are likely to continue to tighten into the third quarter, leaving upside risk to prices"