Oil Prices Slide as US Iran Deal Raises Supply Expectations

(Oil. Photo by Economic Times)

Oil prices recorded a sharp decline on Thursday, falling to their lowest point since the US-Iran conflict began, as an interim deal between Washington and Tehran boosted expectations for global crude supply.

Brent crude futures dropped by $1.53, or 1.9 per cent, to settle at $78.02 per barrel as of 1326 GMT, while U.S. West Texas Intermediate (WTI) crude slid $2.22, or 2.9 per cent, to $74.57 per barrel.

Brent hit its lowest level since the first trading session that followed the initial US-Israeli strikes on Iran, while WTI fell to its weakest point since early March.

The market mood was shaped by expectations of a rise in Iranian oil exports, following the signing of a 14-point memorandum of understanding between Washington and Tehran aimed at easing tensions.

IG market analyst Tony Sycamore said the selloff continued to deepen as energy markets aggressively priced in a quicker-than-anticipated return of Iranian crude to the market, following the recent agreement between the two countries.

The deal kicks off a 60-day negotiation window, during which Iran will permit toll-free passage through the Strait of Hormuz one of the most vital oil and gas shipping routes globally.

The agreement also aims to restore full traffic capacity through the waterway within 30 days.

While analysts anticipate a gradual recovery in oil flows through the Strait of Hormuz, industry experts caution that prices are unlikely to fall dramatically, given that global demand remains strong and inventories still need to be rebuilt.

Goldman Sachs forecasts that Gulf oil exports will return to pre-conflict levels by the end of July, with full recovery in crude production expected by October.

The bank estimates that this normalisation could add around 13 million barrels per day to Hormuz flows, bringing volumes back to about 70 per cent of pre-war levels.

Despite the recent price drop, BNP Paribas said it does not expect oil prices to fully return to pre-conflict levels, viewing $75 per barrel as a lasting floor for the foreseeable future, pointing to ongoing supply constraints and steady demand as key factors.