Oil dips as US-Iran ceasefire deal takes effect, ships return to Hormuz

OIL dipped as the US and Iran’s interim peace deal took effect and a flurry of tankers began transiting the Strait of Hormuz, paving the way to restart the flow of millions of barrels shut in by the conflict.

West Texas Intermediate slipped below US$74 before paring some losses, settling above US$76. It flipped positive in post-trading hours. Global benchmark Brent rose slightly to settle near US$80 a barrel.

As the interim peace agreement took effect, ships started returning to Hormuz, a conduit through which about 20 per cent of global energy transited before the war. The US declared an end to its naval blockade of Iranian ports and US President Donald Trump posted on Truth Social that “oil is flowing.”

Now, a complex negotiating period over Teheran’s nuclear programme begins.

“I think the market is pricing in a quicker recovery out of the Middle East than most analyst had anticipated,” said Dennis Kissler, head of energy trading at BOK Financial Securities.

“But, the market has over-exaggerated this sell off, futures are oversold, and while the strait may begin to open, ready global supply is still tight,” he added.

The push for diplomacy and the reopening of Hormuz allow for a resumption of production shuttered by major exporters like Saudi Arabia, the United Arab Emirates and Iraq – an unprecedented disruption that initially propelled key fuel prices to record levels.

With refiners in Asia already comfortably supplied, a wave of cargoes could put further downward pressure on prices, which have lost around 38 per cent since hitting a four-month high in April.

Vessel movements are showing initial glimmers of progress. At least four supertankers, including three controlled by Saudi Arabia’s Bahri, were observed leaving through the strait, along with a ship carrying Qatari liquefied natural gas and a Chinese fuel tanker, ship-tracking data showed. Four Iranian tankers and two more ships with Iran links were spotted crossing. 

SEE ALSO

Traffic flows through Hormuz as US-Iran deal takes effect, but key questions remain

First tankers cross strait after Iran deal; Israeli strikes stir doubt in Lebanon

Asian refiners brace for surge in Persian Gulf oil after US-Iran ceasefire agreement

Inflation, energy, markets: What’s next after US-Iran peace deal

First Saudi supertankers start crossing Hormuz after deal

‘Missiles aren’t the problem’: Trump blows through his Iran red lines in justifying peace deal

More

Iranian President Masoud Pezeshkian published a copy of the memorandum text on social media on Thursday (Jun 18). The country said commercial vessel traffic at southern ports had returned to normal since Monday, according to the semi-official Iranian Students’ News Agency. 

Iran had declared the Strait of Hormuz closed after the country came under attack by the US and Israel on Feb 28. The US also subsequently blockaded the conduit and access to Iranian ports.

The interim peace agreement gives Iran major financial relief, including the ability to immediately begin selling its oil. Israel opposes the deal.

Petroleum products are following crude lower. Average nationwide gasoline prices in the US have dropped back to US$3.999 a gallon, compared with a high of US$4.564 in May, according to daily figures from the American Automobile Association.

Still, a return to the prewar normal is by no means assured. 

Goldman Sachs Group said Persian Gulf exports are now expected to “normalise” by the end of July, compared with the end of August previously. However, Hormuz flows may recover to only 70 per cent of pre-war levels, the bank’s analysts said in a note, highlighting producers tapping alternative routes.

While oil prices have eased, pressure on inventories remains acute. Stockpiles at Cushing, Oklahoma, the largest US commercial storage hub, have sunk to about 20 million barrels. That is a level traders consider an operational minimum.

US Defence Secretary Pete Hegseth told reporters on Thursday that “if Iran doesn’t comply, then we’re more than able to reimpose an ironclad blockade.” 

Trump had signalled that the risk of a major economic crisis had played a key role in his decision to call off the war. Markets and analysts are hopeful the resumption of flows from the Middle East will take substantial pressure off of global energy costs and inflation.

“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.

“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.” BLOOMBERG