Oil prices declined in early trading on Friday, as growing optimism over diplomatic progress in the Middle East raised expectations of a potential end to the Iran conflict and a recovery in global supply.
By 3:30 pm AEST (5:30 am GMT), Brent crude futures fell $1.29, or 1.3%, to $98.10 per barrel, while U.S. West Texas Intermediate crude futures dropped $1.30, or 1.4%, to $93.38 per barrel.
The pullback followed developments suggesting that tensions in the region may be easing. A 10-day ceasefire between Israel and Lebanon has taken effect, while U.S. President Donald Trump indicated that Washington and Tehran could resume talks as soon as the weekend.
Addressing a key sticking point in negotiations to end the Iran war, which has shut the Strait of Hormuz for seven weeks and disrupted roughly one-fifth of global oil supply, Trump said Tehran had offered not to possess nuclear weapons for more than 20 years.
"We're going to see what happens. But I think we're very close to making a deal with Iran," Trump told reporters outside the White House on Thursday.
Israel’s military campaign in Lebanon has remained a major obstacle to securing a broader agreement, complicating efforts led by Trump to end the conflict with Iran, which began in late February.
Meanwhile, Iranian sources familiar with the matter reportedly told Reuters that U.S. and Iranian negotiators have tempered expectations for a comprehensive peace agreement.
Instead, discussions are increasingly focused on reaching a temporary memorandum aimed at preventing a renewed escalation in hostilities, two Iranian sources told Reuters on Thursday.
