Oil prices fell sharply on Thursday, reaching their lowest levels since the early stages of the Iran conflict, as traders reacted to a preliminary agreement between Washington and Tehran that could pave the way for increased oil exports and the reopening of the Strait of Hormuz.
Brent crude futures declined by $1.59, or 2%, to $77.96 per barrel, while U.S. West Texas Intermediate crude dropped $1.83, or 2.38%, to $74.96 per barrel.
The move pushed Brent to its weakest level since March 2 and left WTI trading at its lowest point since March 4.
Markets Focus on Potential Supply Recovery
The latest decline reflects growing confidence that Iranian oil could return to global markets sooner than previously anticipated.
“The sell-off extended as energy markets continued to aggressively price in a faster-than-expected return of Iranian barrels following the recent U.S.-Iran memorandum of understanding,” IG market analyst Tony Sycamore said in a note.
The 14-point agreement launches a 60-day negotiation process and includes provisions to restore unrestricted passage through the Strait of Hormuz, a route that normally handles a significant share of global oil and liquefied natural gas shipments.
Traffic through the waterway is expected to return to full capacity within a month under the framework of the deal.
Agreement Leaves Key Questions Unanswered
Although the announcement has improved sentiment across energy markets, several major issues remain unresolved.
The accord postpones negotiations over Iran’s nuclear programme and requires the United States and its allies to develop a $300 billion package aimed at supporting Iran’s post-war recovery.
Even so, traders have welcomed the prospect of a reduction in supply disruptions that have driven oil prices higher in recent months.
Banks and Analysts Expect Gradual Normalisation
Market forecasts suggest that the recovery in exports will take place progressively rather than immediately.
Goldman Sachs expects energy exports from the Gulf region to return to pre-conflict levels by the end of July, with production normalisation likely to follow by October.
According to the bank, restoring flows through Hormuz could require an increase of around 13 million barrels per day from current levels.
Kpler analyst Matt Stanley said the market may have removed much of the geopolitical premium from crude prices but warned that conditions remain far from normal.
“Whilst it does seem the worst is behind us, things are quite a long way off from being normal,” he said.
Industry Leaders Urge Caution
Despite the recent decline, many analysts believe oil prices are unlikely to collapse.
International Monetary Fund Managing Director Kristalina Georgieva said countries are expected to rebuild inventories as trade routes reopen and economic activity stabilises.
International Energy Agency Executive Director Fatih Birol also stressed the importance of finalising negotiations within the agreed timeframe, having previously warned that prolonged disruption at the Strait of Hormuz could place the global economy in a “red zone.”
Interest Rate Concerns Add Another Headwind
Oil markets were also pressured by growing expectations that the U.S. Federal Reserve could raise interest rates later this year.
Higher borrowing costs could weigh on economic growth and reduce future energy consumption, adding to the downward pressure already facing crude markets.
As a result, investors continue to monitor both geopolitical developments and monetary policy signals for clues about the next direction of oil prices.
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