US-Iran peace deal: Oil prices continued to decline on Thursday, 25 June, moving closer to levels seen before the conflict, as tankers stranded near the Strait of Hormuz resumed transit following an initial agreement to end the US-Israeli conflict with Iran, reducing fears of supply disruptions.
Brent crude futures for August delivery were down 40 cents, or 0.54%, at $73.34 per barrel, while US West Texas Intermediate (WTI) crude slipped 27 cents, or 0.38%, to $70.07 per barrel.
The downward trend followed Wednesday’s sharp losses, with Brent crude dropping more than $3 and WTI closing nearly $3 lower, as concerns over oil supply eased.
What’s weighing on crude oil prices?
Several segments of the oil market are witnessing a surge in supply as buyers are being flooded with crude offers from the Middle East and other producing regions, including West Africa.
Both the US and Iran have indicated positive developments following preliminary talks aimed at ending the conflict. However, the two sides have occasionally offered differing accounts of the discussions, and further negotiations on issues such as Iran’s nuclear program and a ceasefire in Lebanon continue to face challenges. Nevertheless, growing optimism about a durable agreement has encouraged more tankers to transit the Strait of Hormuz with their tracking systems visibly switched on.
The increase in available crude has weighed on physical oil prices across key markets, from Angola to the United Arab Emirates. Reflecting the softer sentiment, Brent’s prompt spread — a closely monitored indicator of market conditions — moved into bearish contango territory on Wednesday for the first time since the conflict began.
WTI crude has largely retraced its wartime gains and is now trading only about $3 above its pre-conflict level of $67.02 per barrel, after surging to a peak of more than $119 in early March. Other benchmarks have also eased, including Dated Brent, the leading physical crude benchmark, which had climbed above $140 per barrel to reach a record high.
Adding to the supply outlook, the US has temporarily permitted purchases of Iranian crude that had already been loaded before sanctions restrictions tightened. However, financing and insurance constraints are expected to continue limiting the volume of sales.
A significant portion of the market’s ability to manage supply disruptions during the conflict has relied on drawing down inventories, which now need replenishment. In the US, crude stockpiles at Cushing, Oklahoma — a key storage hub — fell to roughly 19 million barrels last week, dropping below levels generally considered necessary for smooth operations.
(With inputs from Bloomberg)
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