Oil prices fall more than 7% as U.S. and Iran appear close to deal to end war

Oil prices fell sharply Wednesday on optimism that the U.S. and Iran were close to an agreement to end the conflict that has caused the largest energy supply disruption in history.

International benchmark Brent crude futures tumbled nearly 8% to close at $101.27 per barrel. U.S. West Texas Intermediate futures, meanwhile, fell about 7% to close at $95.08.

Two U.S. officials and two other sources briefed on the issue told Axios that the White House believes it is nearing a one-page, 14-point memorandum of understanding to end the war and establish a framework for more detailed nuclear talks.

But President Donald Trump on Wednesday expressed doubt that a deal would be finalized. Trump said it was "perhaps, a big assumption" to think that Iran would accept the proposal. He threatened to resume military strikes on Iran if it did not agree.

"If they don't agree, the bombing starts, and it will be, sadly, at a much higher level and intensity than it was before," Trump said in a social media post.

The U.S. expects Iran to respond to several key points over the next 48 hours, according to the Axios report. Nothing has been agreed to yet, but the sources told Axios that this was the closest Washington and Tehran had been to a deal since the war began on Feb. 28.

A spokesperson for Iran's Foreign Ministry told CNBC they were "evaluating" Washington's peace proposal. Iran said earlier Wednesday that it would only accept a peace deal that was "fair."

Trump announced Tuesday that the U.S. would temporarily halt "Project Freedom," a military effort launched just a day earlier to escort commercial vessels through the Strait of Hormuz. Trump cited progress in negotiations with Iran toward a final agreement. 

Brent oil

The Trump administration said roughly 23,000 seafarers across vessels from 87 countries have been stranded in the Persian Gulf following Iran's effective shutdown of the strait.

"A deal that normalises oil flows through the Strait of Hormuz is crucial," Warren Patterson, head of commodities strategy at Dutch bank ING, said in a research note.

"Roughly 13 mb/d of disrupted supply is being largely offset by inventory, which is clearly declining rapidly. This leaves the market more vulnerable with each passing day. Tighter stocks will only leave the oil market trading in an ever more volatile manner," he added.

Surging oil and energy costs were already creating demand destruction globally, Azimut Group's co-head of fixed income Nicolo Bocchin warned, adding that even if the waterway reopens, normalization in shipping and trade flows would still take "weeks and weeks."