Oil Falls as Iran Peace Deal Gets Tankers Moving Through Hormuz

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Oil Falls as Iran Peace Deal Gets Tankers Moving Through Hormuz.

commodities :: 2hrs ago :: source - bloomberg

By Grant Smith, Rong Wei Neo and Nicholas Lua

(Bloomberg) -- Oil fell and gasoline sank after the US and Iran agreed to settle a months-long conflict that triggered the biggest supply disruption in history, and some vessels were seen making their first crossings of the Strait of Hormuz since the war began.

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Brent slipped as much as 3.1% to below $78 a barrel in London, the lowest since early March, whittling away more of its war-time gains, after President Donald Trump said he had signed an interim deal that envisions rapidly reopening the Persian Gulf's critical waterway. In the US, gasoline prices dropped below $4 a gallon for the first time since March.

An end to the tensions and the reopening of Hormuz paves the way to restart millions of barrels of oil production shuttered by major exporters like Saudi Arabia, the United Arab Emirates and Iraq — a disruption that initially propelled key fuel prices to record levels. It stands to put further downward pressure on prices, which have lost around 38% since hitting a four-month high in April.

Vessel movement is showing initial glimmers of progress. Three laden oil supertankers controlled by Saudi Arabia's Bahri that had been stuck inside the Persian Gulf switched on their signals in the Gulf of Oman, while a ship carrying Qatari liquefied natural gas and a Chinese fuel tanker also exited, ship-tracking data showed.

"The probability of Hormuz remaining open — assuming the deal is finalized on Friday — is now greater than at any time during the crisis," said Aldo Spanjer, head of energy strategy at BNP Paribas SA. But "even in a best-case scenario, several months will be needed for oil flows to normalize."

Iran had declared the Strait of Hormuz closed after the country came under attack by the US and Israel on Feb. 28, effectively shuttering the route for a fifth of the world's oil. The US also subsequently blockaded the conduit in a bid to ramp up the pressure on the Islamic Republic.

The crisis propelled Brent futures above $126 a barrel in April, the highest level since 2022. But as the diplomatic process gathered momentum, and producers found workarounds to sneak cargoes out of the Gulf, the rally began to dissipate.

Brent futures have collapsed by about 11% so far this week, putting them on track for a second straight weekly loss. With the fresh drop on Thursday, the global benchmark is only a little more than $5 above the price before the war broke out.

Petroleum products are following crude lower. Average nationwide gasoline prices in the US have dropped back to $3.999 a gallon, compared with a high of $4.564 last month, according to daily figures from the American Automobile Association.

Still, a return to the pre-war normal is by no means assured.

Goldman Sachs Group Inc. said Persian Gulf exports are now expected to "normalize" by the end of next month, compared with the end of August previously. However, Hormuz flows may recover to only 70% of pre-war levels, the bank's analysts said in a note, highlighting producers tapping alternative routes.

While oil prices have eased, pressure on inventories remains acute. Stockpiles at Cushing, the largest US commercial storage hub, have sunk to about 20 million barrels. That's a level traders consider an operational minimum.

On Wednesday, President Trump signaled that the risk of a major economic crisis had played a key role in his decision to call off the war. Military escalation "could have caused an international depression," he said. Iranian Foreign Ministry spokesman Esmail Baghaei said US oil sanctions must now be lifted immediately.

"The easy part was reaching an agreement — the harder part is determining how much of the disruption from the past few months becomes permanent," said Haris Khurshid, chief investment officer of Karobaar Capital LP.

"Markets tend to assume a reopening means a reset," said Khurshid. "While really some of the changes made during the disruption may stick around longer than people expect."

--With assistance from Gabriel Levin.