Oil prices tumbled 2% on Thursday to their lowest since the first trading day of the Iran war, as a US-Iran interim deal to end the conflict, reopen the Strait of Hormuz, and ease sanctions on Tehran brightened the global supply outlook.
Brent crude futures slid $1.59, or 2%, to $77.96 a barrel by 0811 GMT, while US West Texas Intermediate (WTI) fell $1.83, or 2.38%, to $74.96 a barrel. Brent sank to its lowest since March 2, the first day of trading after the initial US-Israeli strikes on Iran, while WTI hit a level not seen since March 4.
The sell-off extended as energy markets aggressively priced in a faster-than-expected return of Iranian barrels following the recent US-Iran memorandum of understanding, said IG market analyst Tony Sycamore in a note. The 14-point memorandum initiates a 60-day negotiation period, during which Iran will allow toll-free passage through the Strait of Hormuz, a critical oil and gas shipping lane. The deal requires traffic through the strait to be restored to full capacity within 30 days.
The preliminary accord defers more difficult issues, such as Iran’s nuclear program, and requires the US and its partners to devise a $300 billion plan to finance Iran’s recovery. Analysts expect a gradual recovery in flows through the Strait of Hormuz, though industry experts caution that prices may not plummet as demand recovers and inventories are refilled.
Investment bank Goldman Sachs anticipates Gulf exports to normalize to pre-war levels by end-July, with crude production recovering by October. The bank estimates that normalization in exports to pre-war levels might require a 13 million barrel-per-day increase in Hormuz flows from current levels to around 70% of pre-war levels.
“While it does seem the worst is behind us, things are quite a long way off from being normal,” said Kpler analyst Matt Stanley, adding that the war risk premium on prices has been largely priced out. Oil prices are likely to ease, but not plummet, as countries replenish reserves and maritime traffic normalizes, International Monetary Fund chief Kristalina Georgieva said on Thursday.
International Energy Agency chief Fatih Birol stressed the importance of completing negotiations within 60 days, having previously warned that the global economy would enter a “red zone” if the Strait does not reopen by end-June. Also weighing on the oil market are increased bets that the US Federal Reserve may raise interest rates later this year to curb inflation, which could slow economic growth and suppress oil demand.
Source: ARY News