Oil sank after the US and Iran agreed to an interim deal to end their months-long war, potentially allowing the Strait of Hormuz to fully reopen and easing a supply crunch that has rattled global energy markets.
Brent tumbled as much as 5.3% to below US$83 a barrel, after closing last week at a three-month low, while West Texas Intermediate briefly fell below US$80. President Donald Trump said in social-media posts he was authorising the “toll free opening” of Hormuz, as well as ending a blockade of the Islamic Republic, with the strait to reopen when the deal is signed on Friday.
While the US leader heralded the move to “let the oil flow!”, traders and analysts struck a more cautious tone, highlighting the lack of fine-print detail on the text, hurdles for the shipping industry to restart transits of the waterway, and a drawn-out timeline for fields to restart pumping. Larger volumes had already been escaping through Hormuz in the weeks prior to the agreement, too.
Oil sank after the US and Iran agreed to an interim deal to end their months-long war, potentially allowing the Strait of Hormuz to fully reopen and easing a supply crunch that has rattled global energy markets.
Brent tumbled as much as 5.3% to below US$83 a barrel, after closing last week at a three-month low, while West Texas Intermediate briefly fell below US$80. President Donald Trump said in social-media posts he was authorising the “toll free opening” of Hormuz, as well as ending a blockade of the Islamic Republic, with the strait to reopen when the deal is signed on Friday.
While the US leader heralded the move to “let the oil flow!”, traders and analysts struck a more cautious tone, highlighting the lack of fine-print detail on the text, hurdles for the shipping industry to restart transits of the waterway, and a drawn-out timeline for fields to restart pumping. Larger volumes had already been escaping through Hormuz in the weeks prior to the agreement, too.
Lower crude prices — if they endure — stand to reduce inflationary risks for policymakers including at the Federal Reserve, which will review interest rates this week. Beyond oil, European natural gas futures sank as much as 5.8% on Monday, while gold and copper rose as the US dollar weakened. Crops declined.
At this stage, many hurdles remain before traffic through Hormuz can fully resume. These include the clearing of mines, as well as clarity on Tehran’s desire to exercise greater control over vessels passing through.
“We still need to understand what the deal means,” said Chris Weston, head of research at Pepperstone Group Ltd. “Even with the strait slated to open on Friday, there could be mines still, and insurance providers could be charging high rates.”
Prices:
- Brent for August settlement fell 4.9% to US$83.06 a barrel at 9.38am in London.
- WTI for July delivery slid 5.3% to US$80.37 a barrel.
In a sign of the market’s shifting dynamics, Brent’s prompt spread — the difference between its two nearest contracts — narrowed to less than US$1 a barrel in backwardation. While that remains a bullish pattern, with the nearer contract above the next in line, it is down from more than US$12 in April.
Traders will be on alert for signs of the potential restart of crude output from Persian Gulf fields that were shut-in during the conflict. Producers have warned that reviving supplies in full could take months given the technical and geological challenges, as well as damage to infrastructure.
Source: theedgemalaysia