US-Iran peace deal: Oil prices declined in early trading session on Thursday, 18 June, after the United States and Iran reached an interim agreement aimed at ending the conflict, reopening the Strait of Hormuz, and easing US sanctions on Iranian oil exports. The deal is expected to resolve what has been considered the largest disruption to global energy supplies in recent history.
Brent crude futures had fallen 89 cents, or 1.12%, to $78.66 per barrel, while U.S. West Texas Intermediate (WTI) crude slipped 98 cents, or 1.28%, to $75.81 per barrel.
What’s weighing on crude oil prices?
Both benchmark indices resumed their downward trajectory, giving up the gains recorded on Wednesday after US President Donald Trump warned that military strikes could resume if Iran’s leadership “doesn’t behave.”
A 14-point memorandum has initiated a 60-day negotiation window, under which Iran will permit toll-free transit through the Strait of Hormuz, a vital route for global oil and gas shipments. The agreement also stipulates that traffic through the strait should return to full operating capacity within 30 days.
However, the preliminary deal leaves several contentious issues unresolved, including Iran’s nuclear programme. It also calls on the US and its allies to devise a $300 billion funding package to support Iran’s economic recovery.
According to a Reuters report, the International Energy Agency (IEA) warned on Wednesday that if the agreement is fully implemented and the Strait of Hormuz reopens, the current supply crunch could evolve into a substantial supply surplus by 2027. In its monthly market outlook, the agency projected that global oil supply could exceed demand by 5.05 million barrels per day next year as Middle Eastern crude returns to international markets.
Meanwhile, the US Federal Reserve is increasingly debating the possibility of raising interest rates later this year to contain inflationary pressures, a move that could dampen economic activity and weaken oil demand.
Updated projections released on Wednesday showed that nine of the Fed’s 19 policymakers now anticipate the need for a rate hike, marking a notable shift from three months ago when none supported such a move.
(With inputs from Reuters)
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