Oil slumps as Hormuz diplomacy boosts market optimism

CRUDE oil prices fell for a third consecutive session on Wednesday, extending weekly losses to more than 10 per cent as investors grew increasingly optimistic that diplomatic efforts could restore shipping access through the Strait of Hormuz.

Oil prices slipped towards US$75 a barrel after Qatar said an interim proposal had been prepared and Washington and Tehran indicated that negotiations to reopen the strategic waterway were making progress.

US President Donald Trump had earlier halted planned military action against Iran to allow diplomacy to proceed, while reiterating his demand for the swift reopening of Hormuz, one of the world's most important energy transit routes.

Iran is reportedly considering a proposal that would allow European countries to clear mines from the strait, while Tehran said discussions with Oman on establishing safe shipping routes were advancing.

Saudi Arabia is also continuing talks with Yemen's Houthi militants through Omani mediators in an effort to prevent further escalation of tensions in the Red Sea.

The easing geopolitical risks reduced concerns over possible disruptions to global energy supplies, putting further pressure on crude prices.

Meanwhile, the US dollar remained subdued as falling oil prices lowered inflation concerns and reduced market expectations of a Federal Reserve interest rate increase.

The dollar index hovered around 100 after fresh US economic data showed signs of a slowing economy. Job openings fell to 7.36 million in June, while factory orders declined 0.3 per cent for a second consecutive month. The US trade deficit also narrowed as imports fell more sharply than exports.

US Treasury yields declined as investors reassessed the likelihood of tighter monetary policy.

Markets are now pricing in a 57 per cent probability of a Federal Reserve rate hike at the Sept 15-16 policy meeting, down from earlier expectations.

Investors are turning their attention to the ADP private employment report and Friday's July non-farm payrolls data for further signals on the strength of the US labour market and the Fed's next move.

The Japanese yen held relatively steady after the release of Bank of Japan meeting minutes and a recent joint US-Japan currency intervention.

USD/JPY maintained overnight gains but remained below the 158 level as expectations of a potential US-Iran agreement and reduced Fed tightening bets limited demand for the US dollar. However, concerns over Japan's fiscal position and the wide interest-rate gap between the Bank of Japan and the Federal Reserve continued to weigh on the yen.

Gold prices softened as improving geopolitical sentiment reduced demand for safe-haven assets, while expectations of higher interest rates continued to limit the appeal of non-yielding bullion.

Among other precious metals, spot silver gained 0.2 per cent to US$59.61 an ounce, platinum fell 0.2 per cent to US$1,732, and palladium declined 0.4 per cent to US$1,348.

Markets remain focused on developments surrounding the Strait of Hormuz, US employment data and the Federal Reserve's monetary policy outlook, with investors closely monitoring any shifts in geopolitical risks and global energy supply conditions. - August 5, 2026