Oil prices extended declines, nearly erasing their wartime gains, due to increasing supply and advancement in US-Iran peace negotiations. West Texas Intermediate (WTI) dropped below $70 a barrel after a nearly 4% fall in the previous session, while Brent crude closed near $74. The market is currently oversupplied, with numerous oil offers from the Middle East and West Africa.
The global benchmark, Brent crude, fell below $75 for the first time since the Iran war commenced. This decline is largely attributed to increased vessel traffic through the Strait of Hormuz, with ships now openly transiting the waterway. Both the US and Iran have indicated early progress in peace talks to end the conflict that began in late February, although negotiations are expected to be lengthy. The International Energy Agency (IEA) estimates that the United Arab Emirates (UAE) is exporting oil at nearly 85% of pre-war levels, highlighting the significant oil flow from the region.
The surge in oil cargoes through the reopened Strait of Hormuz, following a US-Iran agreement, has led to oversupply and weakened markets in Europe and Asia. Angolan crude, typically bought by China, is selling at its steepest discounts in over a decade, with some barrels changing hands at nearly $10 below the Dated Brent benchmark. Additionally, some Chinese refiners are reportedly selling oil cargoes, a reversal of usual market behavior. While the global physical oil market has moved from significant tightness to oversupply, low global inventories and restocking needs could absorb some of the excess supply, leaving the system vulnerable to new disruptions.
US Energy Secretary Chris Wright stated that crude oil flows through the Strait of Hormuz are close to pre-war levels, with about 20 million barrels having exited the strait in the last 24 hours. He noted that the initial deal to end the conflict reached this month, if sustained, would prevent Iran from closing the Strait of Hormuz again. However, achieving complete normalcy would require several weeks for demining efforts in the strait. UBS has revised its Brent price forecasts downwards, expecting $85 per barrel for both end-September and end-December, and $80 per barrel for end-March and end-June 2027.
