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Oil prices fell by more than $4 on Monday, June 15, after US President Donald Trump and Iranian Deputy Foreign Minister Kazem Gharibabadi announced an initial agreement to end the war and resume passage through the Strait of Hormuz.
Key points:
- Oil prices are falling after news of a settlement in the conflict between the US and Iran.
- A decrease in crude oil prices is expected as a result of the resumption of traffic through the Strait of Hormuz.
Oil prices are falling: what happened
Brent crude oil futures fell by $4.08, or 4.7%, to $83.25 a barrel, while West Texas Intermediate crude oil fell by $4.35, or 5.1%, to $80.53.
The price of both crude grades fell on Monday to their lowest level since March 10, adding to their more than 3% drop on Friday.
The US President stated on Sunday that the Strait of Hormuz would be open “for free,” and the US naval blockade of Iranian ports would also cease. According to Pakistani Prime Minister Shehbaz Sharif, whose country mediated, the US and Iran will sign a memorandum of understanding in Switzerland on Friday.
“The geopolitical risk premium that has been factored into crude prices is now aggressively declining as traders price in the prospect of oil flows resuming,” said Tim Waterer, chief market analyst at KCM Trade.
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Investors are also cautiously monitoring how quickly Middle Eastern producers can resume oil production and exports after war-related losses, and whether new vessels will enter the region.
“While these uncertainties suggest risks to our upward forecast for Brent crude futures to reach $80 a barrel by the end of the year, it is worth noting that oil flows through the Strait of Hormuz only need to reach 60-70% of pre-war levels to return oil markets to pre-war expectations of supply surplus,” said Vivek Dhar, a commodities strategist at Commonwealth Bank of Australia.
It is noted that the UK, France, Germany, and Italy stated on Sunday that they are ready to lift sanctions against Iran in response to steps regarding its nuclear program.
“Beyond the immediate price reaction, attention will now shift to the pace of actual supply normalization and adherence to the deal,” said Priyanka Sachdeva, a senior market analyst at Phillip Nova.
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