Oil prices have plummeted following the interim peace deal between the US and Iran, which was signed last week. Brent crude fell to around $80 per barrel, and West Texas Intermediate (WTI) is near $77, erasing nearly all the gains made during the four months of conflict. This sharp decline revives concerns among financial analysts about a potential oil glut, especially as over 60 million barrels of crude oil, previously held up in the Persian Gulf, are set to exit the Strait of Hormuz and head to Asian markets. The agreement, which allowed for the "toll free opening" of Hormuz and ended a blockade on Iran, immediately drove down oil prices and saw US stocks rise, with President Trump citing these economic benefits as a key reason for the deal.
The market's swift correction reflects immediate relief over the reopening of a crucial shipping lane and the reintroduction of Iranian oil. Brent crude, which had soared above $120 during the conflict, lost about 8% in just one week. Major investment banks have adjusted their oil price forecasts downwards; Morgan Stanley now anticipates Brent to average $80 in Q4 2026 and $90 in Q3, down from previous estimates of $100 for Q3. Goldman Sachs has also revised its Q4 forecast to $80 from $90, and its 2027 average to $75 from $80, expecting full recovery of tanker traffic through Hormuz by the end of July.
Despite the current market reaction, some analysts remain cautious, highlighting that geopolitical risks could still disrupt the fragile peace. A similar temporary ceasefire in April saw oil prices drop by 16% in one session before recovering after renewed conflict. The current deal is an interim measure, and further talks for a permanent peace deal, including discussions on Iran's nuclear program, are set to begin in Switzerland, with Pakistan and Qatar mediating. The possibility of incidents in Hormuz or challenges to the ceasefire in Lebanon or Iran's nuclear program could quickly pull oil prices back towards $90 or even above $100 if the strait is truly closed again.
Asian refiners are particularly affected by the impending influx of oil. While they are well-stocked for June and July, having secured supplies from West Africa and the Americas during the conflict, the arrival of 60 million barrels from the Persian Gulf could prompt them to increase processing rates or replenish commercial stock tanks. The supply surge is expected to further weigh on prices, though the long-term stability of the deal, and thus the oil market, remains uncertain given past precedents and ongoing regional tensions.
US Vice President JD Vance arrived in Switzerland for the next round of negotiations on a permanent peace deal, indicating that the interim agreement is just the start of complex discussions. President Trump's admission that global economic collapse fears influenced his decision to sign the interim deal underscores the US's leverage, or lack thereof, in the upcoming talks, especially with the immediate economic benefits derived from the brief détente. The market is now waiting to see if this second attempt at peace will hold, or if regional actors, who were not signatories to the interim agreement, will destabilize the situation again.
