Crude oil prices fell over 1% on Thursday after US President Donald Trump signed an MoU with Iran to reopen the Strait of Hormuz and ease US sanctions on Iranian oil exports. The deal is expected to ease global energy supply concerns.
Brent crude futures fell $1.80, or 2.26%, to $77.91 a barrel, and US West Texas Intermediate (WTI) declined $2.15, or 2.80%, to $74.64 a barrel.
The decline came after prices rose on Wednesday, which was fueled by geopolitical concerns as US President Donald Trump threatened military action if Iran's leadership "doesn't behave.” The new deal, however, shifted market focus as investors became hopeful about improving global oil supplies.
The newly signed 14-point memorandum of understanding (MoU) has set 60 days for negotiations, which will include Iran opening the Strait of Hormuz and allowing toll-free transit. The agreement also aims to bring shipping back to normal within 30 days.
However, the framework postpones discussions on several sensitive issues, like Iran's nuclear program, and suggests a $300 billion international recovery package to support Iran's economy.
According to Reuters, IG market analyst Tony Sycamore said, "The sell-off extended as energy markets continued to aggressively price in a faster-than-expected return of Iranian barrels following the recent US-Iran memorandum of understanding."
The positive sentiment aside, analysts warn that oil prices might not quickly get back to pre-conflict levels.
"The volume of crude returning to the market after Hormuz reopens could be limited as some cargoes already exited through workaround arrangements, while shipowners may remain reluctant to send tankers back into the region amid concerns the agreement could collapse," said Mukesh Sahdev, CEO of energy consultancy XAnalysts.
"Overall crude demand may come faster than supply, checking price falls to pre-war levels," he added.
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The International Energy Agency (IEA) said that if the agreement is successfully implemented, it could significantly alter the long-term oil market. The agency's new monthly forecast indicated a global oil surplus of 5.05 million barrels per day in 2027 as additional Middle Eastern crude enters international markets.
Meanwhile, the US Federal Reserve has emerged as a key player influencing the energy markets. Nine of the Fed's 19 policymakers now anticipate raising rates later this year, up from zero three months ago, according to updated projections.
Higher borrowing costs could slow economic growth and reduce global fuel consumption, adding further pressure on crude prices.