Oil prices continued to decline on Thursday, falling more than two percent amid growing optimism over a potential peace agreement that could lead to the gradual reopening of the Strait of Hormuz, one of the world’s most critical oil shipping routes.

By 0732 GMT, Brent crude futures had fallen by $2.16, or 2.13%, to $99.11 per barrel. U.S. West Texas Intermediate crude also dropped by around 2.1%, losing $2 to reach $93.08 per barrel.

The losses followed a sharp selloff on Wednesday, when both benchmark contracts plunged more than seven percent, hitting their lowest levels in two weeks. Investors appeared increasingly hopeful that tensions in the Middle East could ease after months of instability linked to the war involving Iran.

Saudi news outlet Al Arabiya reported on Thursday that understandings had been reached regarding a possible easing of the U.S. blockade on Iranian ports in exchange for the gradual reopening of the Strait of Hormuz. However, Reuters said it had not yet independently verified the report.

Iran announced on Wednesday that it is reviewing a U.S.-backed peace proposal that sources say could formally end the conflict. According to reports, the proposal does not fully address key American demands regarding Iran’s nuclear program or guarantee the complete reopening of the strategic waterway.

Market analysts said oil markets remain highly sensitive to developments in the region.

Priyanka Sachdeva, senior market analyst at Phillip Nova, said investor sentiment has been heavily influenced by headlines surrounding diplomacy and military tensions for more than two months.

She warned that if a formal agreement is eventually reached, oil prices could fall significantly as geopolitical risk premiums quickly disappear from the market. At the same time, she noted that any renewed attacks on oil infrastructure or further escalation in the Middle East could easily trigger another sharp rise in prices.

Earlier this week, U.S. Treasury Secretary Scott Bessent urged China to increase diplomatic pressure on Iran to reopen the Strait of Hormuz to international shipping. He also said President Donald Trump and Chinese President Xi Jinping are expected to discuss the issue during a meeting next week.

Meanwhile, analysts say uncertainty remains high despite the recent optimism. Hiroyuki Kikukawa, chief analyst at Nissan Securities Investment, stated that peace negotiations are likely to continue at least until the upcoming U.S.-China summit, but warned that the outlook beyond that remains unclear.

The Strait of Hormuz is a vital route for global energy markets, with a significant portion of the world’s oil exports passing through the narrow waterway. Any disruption or reopening of the route has immediate effects on international oil prices and global economic stability.