Oil Slides as Trump’s Hormuz Agreement Lifts Outlook for Supply
(Bloomberg) -- Oil fell as an interim US-Iran peace deal went into effect, putting the focus on how quickly transits through the Strait of Hormuz can be ramped up as Persian Gulf producers restart shut-in fields.
Brent sank toward $78 a barrel after a modest gain on Wednesday, while West Texas Intermediate was near $75. President Donald Trump said he had signed the deal, which envisions a rapid reopening of the critical waterway.
US oil sanctions must now be lifted immediately, according to Iranian Foreign Ministry spokesman Esmail Baghaei. “Iran must be able to sell its oil, shipping and insurance must not face any issues, and the revenues from oil sales must also be received,” he said on state television.
Crude has shed almost all of the gains seen during the conflict, which erupted in February when the US and Israel attacked Iran to curb its nuclear program. Tehran responded by blocking the waterway, which used to carry about a fifth of global oil supply in peacetime. The US also subsequently blockaded the conduit in a bid to ramp up the pressure against Tehran.
“The easy part was reaching an agreement — the harder part is determining how much of the disruption from the past few months becomes permanent,” said Haris Khurshid, chief investment officer of Karobaar Capital LP.
Goldman Sachs Group Inc. said Persian Gulf exports are now expected to “normalize” by the end of next month, compared with the end of August previously. Still, flows may recover to only 70% of pre-war levels, the bank’s analysts said in a note, highlighting producers tapping alternative routes.
“Markets tend to assume a reopening means a reset,” said Khurshid. “While really some of the changes made during the disruption may stick around longer than people expect.”
Ahead of the deal’s signing — which ushers in a 60-day period of additional talks on unresolved issues — the oil and shipping industry remained largely in wait-and-see mode, although a handful of vessels began rerouting toward the Middle East, while Iranian tankers laden with oil moved out.
Shipbrokers and owners reported some tentative inquiries about hiring vessels to collect oil from ports across the region, although it’s not clear whether any new deals have been struck. Iraq, the region’s second-largest producer before the war, said it was taking steps to increase exports.
While oil prices have eased, pressure on inventories remains acute. Stockpiles at Cushing, the largest US commercial storage hub, have sunk to about 20 million barrels. That’s a level traders consider an operational minimum.
At the same time, petroleum products have followed crude’s path lower. Average nationwide gasoline prices in the US have dropped back to $4.025 a gallon, compared with a high of $4.564 last month, according to daily figures from the American Automobile Association.
On Wednesday, President Trump signaled that the risk of a major economic crisis had played a key role in his decision to call off the war. Military escalation “could have caused an international depression,” he said.
The US leader “really does want, going into the midterms, lower gasoline prices,” said Carolyn Kissane, associate dean at the Center for Global Affairs at New York University, referring to the elections in November. “He’s willing to accept a deal kind of at all costs.”
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