By Scott DiSavino
July 28 (Reuters) – Oil prices dropped 5% on Tuesday to a two-week low, on cautious hopes for a resolution to the Iran war as traders assessed developments in the Middle East.
Brent futures fell $4.61, or 5.2%, to $83.75 a barrel at 12:01 p.m. EDT (1601 GMT). U.S. West Texas Intermediate (WTI) crude fell $4.06, or 4.9%, to $78.55.
After dropping about 17% over three days, both crude benchmarks were on track for their lowest closes since July 13.
Oman has presented Iran with a plan backed by Gulf states to manage the Strait of Hormuz, including collecting voluntary fees for using it, a Gulf source and a Western diplomat told Reuters.
A senior Iranian source told Reuters that Tehran had yet to respond to the Omani proposals, intended to serve as a basis to end the disruption to trade through the strait caused by the U.S.-Israeli war on Iran. Before the war began on February 28, about a fifth of global oil supplies flowed through the strait.
U.S. President Donald Trump, who abruptly called off a two-week bombing campaign over the weekend in his latest strategic U-turn, reported “good talks” underway with Iran but threatened to restart strikes unless negotiations deliver. Iran has denied seeking to resume talks with the U.S.
ELSEWHERE IN THE WORLD
In a move that would reduce crude demand, Saudi Aramco shut down its 400,000-barrel-per-day Jizan oil refinery in Saudi Arabia on July 27 following an attack by Iran-backed Houthi militants in Yemen on Saturday, a note from consultancy IIR seen by Reuters showed.
The Houthi conflict has disrupted shipping through the Bab el-Mandeb Strait linking the Red Sea to the Gulf of Aden, creating a second chokepoint for oil flows. Saudi Aramco has considered a new pricing mechanism for crude loading from Egypt’s Sidi Kerir port for Asia to reflect higher shipping costs after re-routing exports through the Suez Mediterranean pipeline.
On Monday, 28 vessels passed through the Bab el-Mandeb, a four-day high, while traffic through the Strait of Hormuz remained low, according to Kpler shipping data.
In Europe, Ukrainian President Volodymyr Zelenskiy said he and Trump had discussed reinvigorating peace talks with Russia.
A settlement in the Ukraine war could result in the lifting of some sanctions on Russia, which could allow Moscow to export more oil. Russia was the world’s third-biggest crude oil producer behind the U.S. and Saudi Arabia in 2025, according to U.S. energy data.
ECONOMIC WORRIES
The U.S. dollar held near a four-week high against a basket of other currencies, as traders grew more concerned the Federal Reserve might raise U.S. interest rates this week. Most major brokerages expect the Fed to hold rates steady, though a growing number said elevated oil prices could prompt a rate hike.
A stronger U.S. dollar makes oil more expensive for many global buyers. Central banks raise rates to fight inflation by boosting consumer borrowing costs, which can slow economic growth and dent demand for oil.
U.S. OIL INVENTORIES
The market awaited weekly storage reports from the American Petroleum Institute (API) trade group on Tuesday and the U.S. Energy Information Administration (EIA) on Wednesday.
Analysts estimated energy firms pulled 1.4 million barrels of crude from storage during the week ended July 24.
If correct, that would be the second week of declines in three weeks, after an increase of 7.7 million barrels in the same week last year and an average decline of 1.0 million barrels over the past five years (2021 to 2025). [EIA/S] [API/S]
(Reporting by Scott DiSavino in New York, Anushree Mukherjee and Ishaan Arora in Bengaluru and Siyi Liu in Singapore; Additional reporting by Stephanie Kelly in London; Editing by Alexandra Hudson, Jan Harvey, Will Dunham, Louise Heavens and David Gregorio)
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