Oil prices dropped more than 2% on Thursday after the United States and Iran signed an interim agreement aimed at ending the conflict between the two countries and reopening the Strait of Hormuz, easing fears over global supply disruptions.
Brent crude futures fell US$1.64, or 2.06%, to US$77.91 a barrel, while US West Texas Intermediate declined US$1.80, or 2.34%, to US$74.99, bringing both benchmarks back to levels last seen in early March.
The agreement includes a 14-point memorandum that extends the ceasefire announced in April by another 60 days and provides for the gradual restoration of traffic through the Strait of Hormuz, one of the world’s most important oil shipping routes. Under the arrangement, Iran will allow toll-free passage and the route is expected to return to full capacity within 30 days.
IG market analyst Tony Sycamore said energy markets were pricing in a quicker-than-expected return of Iranian oil supplies following the latest understanding between Washington and Tehran.
However, analysts cautioned that supply could remain tight in the near term despite the reopening of Hormuz.
XAnalysts chief executive Mukesh Sahdev said some crude cargoes had already been rerouted while shipping companies could remain cautious about sending tankers back into the region amid fears that the agreement could unravel.
The International Energy Agency warned that the easing of supply disruptions could eventually create a significant oil surplus in 2027. In its latest monthly report, the agency projected that global supply could exceed demand by 5.05 million barrels per day next year as Middle Eastern production recovers.
Oil prices also faced pressure from expectations that the US Federal Reserve could raise interest rates later this year, a move that could slow economic growth and weaken energy demand. Nine of the Fed’s 19 policymakers now expect at least one rate increase, compared with none three months ago.
Reuters
