Oil falls as traders hope for Iran deal following Lebanon-Israel ceasefire

By Georgina McCartney

HOUSTON, June 4 (Reuters) - Oil prices were down by around 3% on Thursday on investor hopes for an end to the U.S.-Israeli war with Iran that could lead to a reopening of the Strait of Hormuz, following a ceasefire deal between Israel and Lebanon. 

Israel and Lebanon said late on Wednesday they had agreed to implement a ceasefire, raising hopes for a deal between Washington and Tehran. Iran has made any agreement conditional in part on an end to fighting between Israel and Hezbollah, an Iran-aligned group in Lebanon.

Brent futures were down $3.20, or 3.27%, at $94.61a barrel at 1:28 p.m. EDT, while U.S. West Texas Intermediate crude was down $3.71, or 3.86%, at $92.31.

"Once again the market is giving full credit to hopes of a resolution here and the worries about supplies are just not registering with the market," said John Kilduff, partner at Again Capital. 

"This latest development with Israel and Lebanon is pulling the rug out from under any sort of bullish thesis today," Kilduff added.  

The two contracts rose about 2% on Wednesday after renewed Middle East hostilities, including Iranian attacks on Kuwait and U.S. military strikes near the Strait of Hormuz. 

"Crude futures are reversing yesterday's gains and then some on news that Israel and Lebanon have entered a peace deal, which should allow U.S. and Iran peace talks to continue," said Dennis Kissler, senior vice president of trading at BOK Financial.

"Shipping traffic in the Strait of Hormuz remains at a near standstill, however, some ship re-positioning shows them moving closer to the Persian Gulf which could be a sign of an expected opening sooner than later," Kissler added.  

In the U.S., the Republican-led House of Representatives approved a resolution on Wednesday to block Trump from continuing the war against Iran. To take effect, the resolution would need Senate approval and two-thirds majorities in both chambers to override an almost certain Trump veto.

"In our view, the path of least resistance for prices remains to the upside as long as flows remain restricted," UBS analyst Giovanni Staunovo said.

Deputy Prime Minister Alexander Novak said on Thursday that Russian oil production has fallen since the start of the year due to unplanned refinery maintenance, marking the first time a Russian official has acknowledged the decline.

U.S. crude stockpiles fell by 8 million barrels to 433.7 million barrels in the week ended May 29, the Energy Information Administration said on Wednesday. That was a much bigger drop than the 4-million-barrel draw analysts had expected in a Reuters poll.

Iranian oil prices slipped into discounts for the first time since April, while Russian crude premiums eased as traders cut prices to entice Chinese buyers amid sluggish demand, trade sources said.

Elsewhere, OPEC expects robust oil demand growth and is not changing its estimates, Secretary General Haitham Al Ghais said on Thursday at the St Petersburg International Economic Forum, despite the Middle East conflict and closure of the Strait of Hormuz.

(Additional reporting by Ahmad Ghaddar in London, Helen Clark, Sam Li and Lewis Jackson. Editing by Mark Potter, Jan Harvey, Nia Williams and Cynthia Osterman)