Oil prices have dropped near a three-month low, with Brent crude falling below $80 a barrel and West Texas Intermediate (WTI) plunging to a daily low near $75.04 per barrel. This decline is largely due to an anticipated interim peace agreement between the US and Iran, expected to be signed on Friday. The deal would grant Tehran broad financial incentives, including the immediate right to sell its oil and waivers on sanctions related to banking, insurance, and transportation. Since the peace deal announcement on June 14, WTI and Brent crude oil both fell close to 9%, reaching their lowest levels since March 10, though they remain about 20% above pre-war levels.
The proposed 14-point draft memorandum outlines that Tehran must ensure the free movement of merchant ships through the Strait of Hormuz, and in return, the US will lift its blockade of the strategic waterway, which typically carries about a fifth of global oil supplies. The agreement also includes a commitment from Washington to issue waivers for Iranian crude exports, petrochemical products, and all related services. A senior US official confirmed that Iran would receive sanctions relief for oil sales, with sustained relief tied to Iran fulfilling its promises.
However, energy insiders remain skeptical about how quickly the Strait of Hormuz can fully reopen and how long it will take for new supplies to reach international markets. While the market anticipates a revival in supply, crude stockpiles have been drawing rapidly, with a US industry group estimating an 8.3 million barrel drop last week. Analysts note that global oil inventories were depleted during the disruption and will take time to rebuild, potentially continuing to fall before new supplies from the Gulf arrive. Saudi Aramco's CEO Amin Nasser cautioned that disruptions could delay market stability until 2027, potentially affecting 100 million barrels of oil supply each week.
The slump in crude prices has also helped to lower product prices, easing inflationary pressures and the burden on consumers, with average nationwide gasoline prices in the US dropping back towards $4 a gallon after peaking above $4.56 in May. The impact of these shifts in energy costs will be considered at Wednesday's Federal Reserve meeting, though no change in borrowing costs is expected. Critical details of the deal on nuclear matters are still being finalized, with 60 days of negotiations initiated, and a formal signing scheduled for June 19 in Switzerland. The risks are skewed to the upside, as any failure to produce a durable agreement, especially on nuclear provisions, could reverse the recent decline.
