Oil prices tumble following reports of tentative US-Iran agreement

Oil prices were about four per cent lower on Wednesday (27 May) after Iranian state TV said it had seen a draft of an initial, unofficial framework for an agreement between Iran and the United States on ending their conflict and reopening the Strait of Hormuz.      The report, plus a pick-up in tanker traffic through the strait, outweighed Iran's earlier comments that the United States had violated a ceasefire and a tanker on Tuesday reporting an explosion off the Oman coast.

Brent crude futures fell $3.94, or four per cent, to $95.59 a barrel by 12:36 GMT (16:36 GMT), while US West Texas Intermediate crude lost $3.97, or 4.24 per cent, to $88.91.

Brent fell more than five per cent to as little as $94.16 earlier in the session, while WTI fell over six per cent to $87.77, both marking their lowest in a month. The losses more than erased Brent's gains from Tuesday.

The US will withdraw military forces from the vicinity of Iran and lift its naval blockade, Iranian state TV said, adding that the management of ship traffic through the Strait of Hormuz will be handled by Iran in co-operation with Oman.

US President Donald Trump told a cabinet meeting on Wednesday that Iran very much wanted to make a deal, but that the US was not satisfied with it yet. Iran's Fars News has said unresolved issues remain.      US Secretary of State Marco Rubio said there has been some progress in negotiations with Iran towards a deal.

"Crude futures are under heavy selling pressure in the early trade, dropping over five per cent as a leader from the Iranian military stated that the possibility of returning to war is low, which has many traders believing a peace deal is getting closer...It seems the extremely tight global supplies that had been factored into crude are beginning to lessen," said Dennis Kissler, senior vice president of trading at BOK Financial.

July Brent futures had risen 3.6 per cent in the previous session after the US carried out new strikes in Iran, hurting hopes that had risen over the weekend that Washington and Tehran would reach a peace deal. Israel ramped up bombing in Lebanon on Tuesday, further straining peace efforts.

After an April ceasefire in the three-month-long conflict, both sides indicated they had made progress in talks towards reopening the strait.      Iran's effective closure of the Strait of Hormuz has taken more than 14 million barrels per day of Middle East oil supply offline, according to the International Energy Agency.         In a sign of demand weakening, India's two largest airlines have sharply cut their planned domestic flights for June and July, sources familiar with the matter said, as the industry grapples with a rise in jet fuel costs in the wake of the Iran war.