Crude oil slides most in a week to $95/bbl amid hopes of fresh Iran peace talks

Crude oil prices slumped on Wednesday amid hopes of fresh peace talks between the US and Iran in Pakistan's capital after the first round of discussions held in Islamabad failed last week. Brent crude was last trading down by $4.1 -- or 4.2 per cent -- at $95.2 per barrel, while WTI crude was lower by $6.9 -- or 7.0 per cent -- for the day at $92.2 per barrel. Analysts said that the news of a second round of talks between both warring sides rekindled hopes of smooth oil supplies, leading to the sharp fall in benchmark oil rates.

Brent plunged as much as 5.0 per cent while WTI tanked 8.1 per cent to $94.4 and $91.1 a barrel in intraday trade, respectively. That marked their biggest slide in a week.

Analysts said hopes were immediately building up about the return of normalcy to the shipments through the Strait of Hormuz. This week, the US claimed to have enforced a naval blockade of Iran's ports, asserting that no ship passed through in the first 24 hours, in a bid to restore normal traffic in the maritime region.

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The Strait of Hormuz -- a critical maritime region central to the West Asia conflict -- has been effectively blocked on account of Iran's retaliatory action against several countries in the region after joint US-Israel strikes against Tehran on February 28 killed its Supreme Leader. On April 7, the US announced a two-week ceasefire after the lapse of an earlier deadline regarding the reopening of the strait. US President Donald Trump had warned of unprecedented strikes targeting Iran's power infrastructure, unless it opened the waterway.

Now, all eyes are on the next round of talks in Islamabad, with Trump hinting at possible progress in the matter, claiming once again that the Iranian side had reached out to strike a deal. Tehran has denied several US claims over the past few weeks, including Trump's remark late last month that it was "begging to make a deal".

Trump said that the peace talks could resume in the next two days in Islamabad, praising Pakistan for mediating the discussions with Iran though the first round failed.

The US has pursued two main goals in the talks: the reopening of the strait and an agreement to ensure no nuclear power for Iran. After Saturday's talks fell through, Trump said that much of the talking points between both sides were agreed upon except the nuclear condition.

Iran has insisted that it has the right to develop its nuclear capabilities.

Oil has cooled much from four-year highs of March

In mid-March, Brent had touched a nearly four-year peak of $119.5 per barrel amid mounting tensions between US-based Israel and Iran. At the current level, it stands more than 20 per cent below that milestone.

For India, elevated oil prices obstruct growth with inflationary pressure as it inflates its import bill while denting the currency. The country meets more than 85 per cent of its oil needs through imports.

India has endured the West Asia crisis by ramping up its domestic energy production, imposing certain levies on certain domestically-produced petroleum derivatives and diversifying its imports. It has prioritised LPG for households and essential services, while assuring the public of ample auto and cooking gas supplies.

Why reopening of Strait of Hormuz matters

The Strait of Hormuz is a crucial waterway that connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. Under normal circumstances, it enables the passage of about one-fifth of the world's oil and gas supplies.

IEA and IMF warnings

Paris-based energy watchdog International Energy Agency (IEA) has warned that oil prices may not reflect full severity of the Middle East crisis, according to foreign media reports.

International financial institution IMF reportedly warned of a potential third global recession this century, following the global financial crisis and the coronavirus pandemic, cautioning governments against broad fiscal stimulus and cost-of-living relief measures. It also stated that such spending could complicate central banks' efforts to control inflation through interest rate adjustments.