Oil prices fall 2% as mediators try to prevent U.S. and Iran from returning to war

Oil prices fell Thursday, as mediators between the U.S. and Iran work to prevent the latest round fighting from escalating into full-blown war.

Brent crude futures, the international benchmark, fell 2.2% to close at $76.30 per barrel. West Texas Intermediate crude futures lost about 2% to settle at $72.08 per barrel.

Qatar and Pakistan are working to bring Washington and Tehran back to the negotiating table, officials from the countries told MS NOW.

Prices rose earlier in the session after the U.S. bombed around 90 targets in Iran overnight. It was the second consecutive day of U.S. strikes in retaliation for Iranian attacks this week on tankers transiting the Strait of Hormuz.

Tehran responded by firing missiles and drones at U.S. assets in Bahrain, Kuwait, Qatar and Jordan, according to Iranian state media.

WTI advanced 4.4% on Wednesday, registering its biggest daily gain since June 1, after President Donald Trump said the ceasefire with Iran was over and threatened to reimpose the U.S. naval blockade. Brent settled up 5.4% in the prior session, notching its biggest daily gain since May 4.

Tanker traffic through Hormuz has slowed this week as the security situation in the strait has deteriorated. But the oil market is not pricing in a full closure of Hormuz, said Andy Lipow, president of Lipow Oil Associates.

"It appears to be pricing in a new normal where periods of conflict (perhaps we might call them missile skirmishes) occur between periods of relative calm (or unease) that permit the transit of tankers," Lipow wrote in a Thursday note.

The U.S. and Iran are likely to return to negotiations in the next couple weeks, Citibank analysts told clients in a Thursday note. Washington and Tehran have too much to lose from a spiral of escalation that leads to the destruction of energy infrastucture in the region, they said.

"On the US side, President Trump has shown an affinity to strong equity prices, and stable bond markets, so this is the basis for our view he will return to negotiating in relatively short order," the Citi analysts said.