Oil falls 2% after US-Iran ceasefire agreement, erasing almost all war-related gains

[BEIJING/SINGAPORE] Oil prices fell more than US$1 per barrel on Thursday (Jun 18) after the US and Iran signed an interim agreement that would end the Iran war, reopen the Strait of Hormuz and waive US sanctions on Teheran’s oil, boosting the oil supply outlook.

Brent crude futures were down US$1.64, or 2.06 per cent, at US$77.91 a barrel as of 0427 GMT, and US West Texas Intermediate fell US$1.80, or 2.34 per cent, to US$74.99 a barrel.

The benchmarks resumed their decline, reversing gains made on Wednesday after US President Donald Trump said he could resume his bombing campaign if Iran’s leaders “don’t behave”. Crude has shed almost all of the gains seen during the conflict.

“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,” IG market analyst Tony Sycamore said in a note.

The 14-point memorandum begins a 60-day negotiation period during which Iran will allow toll-free passage through the Strait of Hormuz, a key oil and gas shipping lane. The deal calls for traffic through the strait to be restored to its full capacity within 30 days.

The preliminary accord defers many of the more difficult issues such as Iran’s nuclear program, and also requires the US and its partners to come up with a US$300 billion plan to finance Iran’s recovery.

Analysts are cautious on how much further oil prices might decline in the near term, as supply could remain tight even after the Strait of Hormuz reopens.

“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 prewar levels,” he said.

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If the US-Iran agreement is successfully implemented and the strait reopened, 2026’s supply crisis could turn into a significant supply glut in 2027, the IEA cautioned on Wednesday, forecasting in its monthly market report that supply will outstrip demand by 5.05 million barrels per day in 2027 as Middle East oil returns to the market.

Also weighing on the oil market are ramped-up bets the US Federal Reserve may raise interest rates later in 2026 to rein in inflation, which could slow economic growth and suppress oil demand.

Nine of 19 Fed policymakers now think a rate hike will be needed, Wednesday projections showed, a departure from three months ago when none of them held that view. REUTERS, BLOOMBERG