Oil prices fell almost 3 per cent on Thursday to their lowest since the first trading day of the Iran war, as a U.S.-Iran interim deal to end the conflict, reopen the Strait of Hormuz and ease sanctions on Tehran boosted the global supply outlook.
Brent crude futures were down US$1.53, or 1.9 per cent, at US$78.02 a barrel at 9:26 a.m. ET, while U.S. West Texas Intermediate fell US$2.22, or 2.9 per cent, to US$74.57 a barrel.
Brent sank to its lowest since March 2, which was the first day of trading after the initial U.S.-Israeli strikes on Iran, while WTI was at its lowest since March 4.
“The selloff extended as energy markets continued to aggressively price in a faster-than-expected return of Iranian barrels following the recent U.S.-Iran memorandum of understanding,” IG market analyst Tony Sycamore said in a note.
The 14-point memorandum begins a 60-day negotiation period during which Iran will allow toll-free passage through the Strait of Hormuz, a key oil and gas shipping lane. The deal calls for traffic through the strait to be restored to its full capacity within 30 days.
The preliminary accord defers many of the more difficult issues, such as Iran’s nuclear programme, and also requires the U.S. and its partners to come up with a US$300 billion plan to finance Iran’s recovery.
Analysts expect a gradual recovery in flows through the Strait of Hormuz, while industry experts have cautioned that prices may not plummet as demand recovers and inventories are refilled.
Investment bank Goldman Sachs expects Gulf exports to normalise to pre-war levels by end-July, with crude production recovering by October.
The bank estimates that a normalisation in exports to pre-war levels might be achieved with a 13 million barrel-per-day increase in Hormuz flows from current levels to around 70 per cent of pre-war levels.
BNP Paribas does not currently anticipate a return to pre-war prices and views US$75 per barrel as a “durable floor for the foreseeable future,” it said in a note, given ongoing supply losses and higher demand.
Brent traded around US$60 toUS$70 per barrel in the first two months of the year before the Iran war.
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