The US and Iran signed a memorandum of understanding (MOU) ahead of schedule, with the agreement already in effect. This deal aims to reopen the Strait of Hormuz, which was previously blocked. The quick signing was motivated by concerns over rapidly depleting global energy reserves, with President Trump noting, "reserves run out in about four weeks." While the MOU is signed, further negotiations on Iran's nuclear program are expected in Switzerland.
The reopening of the Strait of Hormuz is anticipated to release a large volume of previously trapped oil, with Signal Group data indicating approximately 31 supertankers carrying about 62 million barrels of crude are set to sail. This influx of oil is expected to reach India in about a week and East Asia in three weeks. Asian refiners, who had already secured alternative supplies, are now considering storing this additional crude or increasing processing rates, as noted by Goldman Sachs analysts who expect Persian Gulf exports to return to pre-war levels by late July.
Market reactions to the peace deal and impending oil flow have been swift. The forward curve for Middle Eastern crudes like Dubai and Murban has shifted into a bearish contango, and Oman crude is now trading at a discount to its Dubai benchmark. Additionally, at least one diesel cargo traded at a discount. Meanwhile, at the Federal Reserve, new Chair Kevin Warsh's first meeting offered minimal forward guidance, aiming to build credibility. Despite the lack of an explicit hawkish stance, markets interpreted the meeting as more hawkish, pricing in around 34 basis points in rate hikes by the end of 2026, up from 21 basis points prior to the meeting. The dollar also rallied, and the yield curve bear-flattened, with 2-year Treasury yields rising relative to longer-term yields.
