Oil prices have fallen significantly, with Brent crude trading below $80 per barrel and West Texas Intermediate near $77, reaching three-month lows. This decline is largely attributed to the prospect of a US-Iran agreement that would lead to the reopening of the Strait of Hormuz, a critical shipping lane for over 20% of global crude and LNG supplies. The war, which began on February 28 and propelled prices close to $120 per barrel in March, is expected to formally conclude with an agreement signed in Geneva on Friday.
The reopening of the Strait of Hormuz, effectively shut since March due to a double blockade by Iran and the US, is expected to restore energy flows and alleviate supply concerns. US President Donald Trump announced the deal and authorized the immediate reopening of the strait. Analysts like Soojin Kim of MUFG expect Brent to remain in the $80-$90 per barrel range in the near term, balancing improved supply prospects with tight inventories and geopolitical risks. However, initial shipping through the strait will likely be gradual due to safety concerns, including the presence of sea mines.
Major banks have already revised their oil price forecasts downwards. Goldman Sachs now expects Brent to average $80 per barrel in the fourth quarter, a $10 reduction from their previous estimate, anticipating Persian Gulf exports to return to pre-war levels by the end of July. Morgan Stanley also cut its Q4 outlook by $15 to $80 per barrel. While the agreement has brought relief to global markets and eased inflationary pressures, some analysts, such as those at RBC Capital Markets LLC, remain cautious, suggesting it could take months to reach pre-war shipping levels and that peak Hormuz flows might be a thing of the past. Concerns also persist regarding the lack of detailed implementation plans and assurances for shipping safety and operating rules.
