Its prices fell on Thursday to their lowest levels since they started in late February, as a temporary agreement to end hostilities, reopen the Strait of Hormuz and ease sanctions against Tehran boosted the outlook for global supply.
The potential reopening of the Straits of Hormuz eliminates the large risk premium that had been built into the crude price.
Brent crude futures were down $1.85, or 2.33%, at $77.69 a barrel at 11:15 a.m. CDT (16:15 GMT), while U.S. WTI was down $1.89, or 2.46%, at $74.90 a barrel.
Brent hit its lowest level since February 27, the last day of trading before the initial US and Israeli strikes against Iran, while WTI was at its lowest level since March 4.
“The potential reopening of the Straits of Hormuz eliminates the large risk premium that had been built into the price of crude due to the disruption of 20% of global oil flows,” Phil Flynn, senior analyst at Price Futures Group, said in a morning note.
“While some argue that full normalization could take weeks — insurance, repairs, lifting of sanctions — the direction is clear, and as we found, the most pessimistic timeline turned out to be too pessimistic,” Flynn added.
The 14-point memorandum of understanding between the United States and Iran marks the beginning of a 60-day negotiation period during which Iran will allow free passage through the Strait of Hormuz. The agreement provides for the restoration of full traffic capacity through the narrow sea passage within 30 days.
The tentative agreement postpones many of the more difficult issues, such as Iran’s nuclear program, and also requires the United States and its partners to come up with a $300 billion plan to finance Iran’s recovery.
Gradual recovery of flows through Hormuz
Analysts expect a gradual recovery in flows through the Strait of Hormuz, while industry experts warn that prices may not collapse as demand recovers and stocks are replenished.
Investment bank Goldman Sachs expects Gulf exports to return to pre-war levels by the end of July, with crude output recovering by October.
The bank estimates that restoring exports to pre-war levels could be achieved by increasing flows through the Strait of Hormuz by 13 million barrels per day, from current levels to about 70% of pre-war levels.
BNP Paribas does not currently foresee a return to pre-war prices and sees $75 a barrel as a “stable floor for the foreseeable future,” it said in a note, given ongoing supply losses and increased demand. Brent traded around $60 to $70 per barrel in the first two months of the year before the war.
China, the world’s second-largest oil consumer, is forecast to consume 753 million metric tons in 2026, down 4.9 percent from 2025, amid a shift to new forms of energy and high oil prices, according to a report published by PetroChina’s research unit.
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