Oil prices plunge further on hopes for peace and reopening of Strait of Hormuz
John Power
Brent crude oil prices hit their lowest since early March on Wednesday, fueled by optimism about the signing of a framework peace agreement between the US, Israel, and Iran. Analysts say the market is pricing in a best-case scenario for the reopening of the Strait of Hormuz.
Global oil prices continued to tumble as expectations grew for a return to stability in energy markets ahead of the signing of a framework agreement to end the war between the US-Israel alliance and Iran, according to analysts.
Brent crude futures for August delivery fell nearly 1% in Wednesday trading, extending a drop of roughly 5% over the previous two sessions. The international benchmark stood at $78.24 a barrel as of 08:00 GMT, its lowest since March 3 — just three days after the war erupted.
During the conflict, oil prices surged more than 50%, but by Wednesday afternoon in Asia, they were only about 7% above pre-war levels before the US and Israel launched strikes on Iran on February 28.
“The immediate outlook, it seems, is optimistic and assumes no major hiccups,” said Tamas Varga, an analyst at PVM Oil Associates in London. “In the last four trading sessions, Brent, for instance, has dropped $17 a barrel, a clear signal of belief that the worst, at least in terms of supply disruption, is over.”
Vandana Hari, founder of oil market analysis firm Vanda Insights in Singapore, said that while news of a memorandum of understanding (MoU) between the US and Iran brought relief to markets, “the hardest part — delivering on the commitments and promises — is yet to come.” She added: “The downtrend in oil prices is purely sentiment-driven. The market is getting ahead of itself by anticipating the reopening of the Strait of Hormuz and is almost pricing in the best-case scenario for normalized flows, which means potential snags from logistics to fresh geopolitical tensions are not sufficiently factored in.”
Although many details of the MoU expected to be signed on Friday remain unclear, Iran is expected to end its near-total blockade of the Strait of Hormuz in exchange for the US lifting its blockade of Iranian ports, along with other concessions. The full reopening of the strait would be a major step toward restoring confidence in the energy supply chain after nearly four months of war-related chaos.
Shipping traffic through the Strait of Hormuz, located between Iran and Oman, has plummeted due to threats from Iranian missiles, drones, and naval mines, cutting off an estimated 14 million barrels per day of global oil supply. Even if the war with Iran ends, global energy flows are expected to take several months to fully recover.
More than 500 vessels are estimated to be waiting to leave the Gulf through the strait, while clearing the channel of naval mines could take at least several weeks. Stephen Cotton, general secretary of the International Transport Workers' Federation, said the signing ceremony expected in Geneva, Switzerland, would be “at least the beginning” of the normalization process. “The number of stuck vessels and the need for crew changes, rest, means that a return to normal shipping patterns may take weeks, even months,” he said in a statement Monday.
