Oil Prices Plummet as Hopes Rise for Strait of Hormuz Reopening

The Impact of Hopes for a US-Iran Peace Deal

Global oil prices have tumbled amid fresh hopes that a US-Iran peace deal may end the greatest energy supply crisis in the history of the market. The price of Brent crude dropped below $84 a barrel as the new trading week began in financial centres across Asia-Pacific, amid optimism that the strait of Hormuz could reopen shortly and bring a return of Gulf oil exports to the market.

Details of the Potential Peace Deal

Trump said on Sunday that a deal was “now complete”, despite recent Israeli airstrikes on Beirut that had threatened to undermine the sensitive talks. Many of the details of the agreement are unclear, notably around the timing of the reopening of the maritime route, who will oversee safe passage and whether any conditions will be applied. Iranian authorities have said there would be a 60-day negotiating period for a final deal tackling wider issues such as Tehran’s nuclear program and sanctions relief.

Oil Price Analysis

The benchmark international oil price traded 4% lower in early trade on Monday, extending the falls recorded on Friday. Oil prices are now at their lowest levels since early March, days after the Iran war began. The oil price began tumbling late last week from $93 a barrel on Thursday to close at $87.50 on Friday after Trump said he was close to reaching a peace deal with Tehran which would end the regime’s effective chokehold on the oil trade route.

The Future Outlook for Oil Prices

Analysts have warned that the expected surge in energy demand over the northern hemisphere summer could force oil market prices higher as global inventories sink to worrying new lows. Even a prompt reopening of the strait could mean the impact of the crisis drags on the market until early next year, according to analysts at Rystad Energy which estimate that the crisis may have cut 1bn barrels of oil from the market to date.