Global oil prices tumbled on Thursday, falling to their lowest levels since the outbreak of the recent US-Iran conflict, after an interim agreement between Washington and Tehran improved expectations for increased crude oil supply to international markets.
According to Reuters, Brent crude futures dropped by $1.53, representing a decline of 1.9 per cent, to $78.02 per barrel as of 1326 GMT. Meanwhile, U.S. West Texas Intermediate (WTI) crude futures fell by $2.22, or 2.9 per cent, to $74.57 per barrel.
The sharp decline pushed Brent crude to its weakest level since trading resumed after the initial US-Israeli strikes on Iran, while WTI reached its lowest point since early March.
The downturn in prices was largely driven by growing optimism that Iranian oil exports could return to global markets sooner than expected following the signing of a 14-point memorandum of understanding between the United States and Iran.
The agreement, designed to reduce tensions between the two countries, has improved confidence among traders and investors that supply disruptions in the region may ease in the coming months.
Commenting on the market reaction, IG market analyst Tony Sycamore said energy traders had quickly adjusted their expectations in response to the possibility of additional Iranian crude entering the market.
“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,” Sycamore said.
A major component of the agreement is a 60-day negotiation period during which both countries are expected to work toward a broader settlement of outstanding issues.
As part of the arrangement, Iran has agreed to permit toll-free passage through the Strait of Hormuz, one of the world’s most strategically important shipping routes for oil and gas exports.
The memorandum also provides for the restoration of shipping activities through the waterway to full operational capacity within 30 days.
The Strait of Hormuz handles a significant share of global energy shipments, and concerns over disruptions to traffic through the route have historically had a substantial impact on oil prices.
Industry analysts expect oil flows through the Strait to gradually recover as confidence returns to shipping operators and regional tensions ease.
However, experts caution that while prices have fallen sharply, a dramatic collapse in oil prices remains unlikely due to continued strength in global energy demand and the need for inventory replenishment in several markets.
Investment banking giant Goldman Sachs forecasts that oil exports from Gulf producers could return to pre-conflict levels by the end of July, with overall crude production expected to recover fully by October.
The bank estimates that the normalisation process could restore approximately 13 million barrels per day of oil flows through the Strait of Hormuz, bringing volumes back to about 70 per cent of levels recorded before the conflict.
Despite the recent weakness in prices, analysts at BNP Paribas believe the market will continue to receive support from underlying supply and demand fundamentals.
The bank said it does not expect crude prices to return to levels seen before tensions escalated in the Middle East, identifying $75 per barrel as a durable floor for the foreseeable future.
According to BNP Paribas, ongoing supply constraints in several producing regions, combined with firm global demand, are likely to limit further downside pressure on oil prices.
With negotiations between Washington and Tehran now underway, market participants are expected to closely monitor developments over the coming weeks for signs of further progress that could influence global energy markets.
