Oil prices are experiencing a dramatic decline following a peace deal between the US and Iran, which has unleashed a significant wave of crude supply and overwhelmed market demand, sparking fears of a global glut. This turnaround is particularly striking given that less than three months prior, the world's main physical oil benchmark reached an all-time high, and only weeks ago, industry executives were cautioning about critically low inventory levels.
The peace agreement has unfrozen more than 60 million barrels of oil that were trapped when the conflict began, further contributing to the oversupply. The agreement reached on June 17, coupled with a US sanctions waiver, allows Iran to resume selling oil in US dollars, removing a significant geopolitical risk premium from prices, despite lingering tanker backlogs and shipping delays in the Gulf.
In response to falling prices and reduced supply worries, OPEC+ has agreed to increase its output for the fifth consecutive month in August, adding 188,000 barrels per day (bpd). This increase follows similar boosts in June and July and will bring the total increase by the seven core members since April to almost 800,000 bpd. Saudi Arabia will account for 62,000 bpd of the August increase, while Russia will add another 62,000 bpd.
