Oil drops below $80 for the first time since the start of the Iran war amid peace deal
Oil prices fell below $80 yesterday for the first time since the start of the Iran war, amid optimism that a peace deal will see energy supplies flow again.
As Donald Trump declared the Strait of Hormuz would fully reopen to oil and gas tankers within days, the price of a barrel of Brent crude dropped towards $78.
That was the lowest since early March, when the war was just days old, and down from a peak of $126 in April.
Oil was trading at $72 before the conflict and at about $60 at the start of the year.
Yesterday’s slide came despite fears that it could be some time before normal supplies are restored through the strait – through which a fifth of the world’s oil and gas passed before the war.
Lower oil prices will ease inflation pressures that have been stoked by the crisis, removing some of the pressure on central banks to put up interest rates.
Peacemaker? As Donald Trump, pictured, declared the Strait of Hormuz would fully reopen to oil and gas tankers within days, the price of a barrel of Brent crude dropped towards $78
The US Federal Reserve makes its decision on rates tonight, while the Bank of England will meet tomorrow.
Details of the memorandum of understanding between the US and Iran are expected to be made public in the coming days, ahead of a formal signing on Friday.
It will extend a fragile ceasefire first announced in April by a further 60 days. But it still leaves major sticking points to be ironed out, including the future of Iran’s nuclear programme and Iran’s demand for a cessation of hostilities by Israel in Lebanon.
Analysts at Goldman Sachs slashed their outlook for the oil price in the fourth quarter of this year from $90 to $80 and for next year from $80 to $75.
That was based on an assumption that exports from the Persian Gulf will return to pre-war levels from the end of July, rather than the end of August as previously thought.
With some oil already trickling through and other supplies being redirected via pipelines, the recovery needed might be even quicker.
At the same time, producers such as Saudi Arabia and the United Arab Emirates might ramp up production more than expected, Goldman noted.
But on the other side, there is a risk that ship owners might steer clear of the region, fearing a resumption of hostilities, while it may take some time to clear away deadly mines.
And stalling talks over Iran’s nuclear capabilities could see Iran close the strait again.
Jotaro Tamura, chief executive of shipping giant Mitsui OSK, said many vessels would wait to restart shipping despite Trump declaring the waterway had already been partially reopened.
He told the Financial Times: ‘What will have to come in place is not just a simple agreement between the relevant countries, but it has to be material and translated into the real situations in the Strait of Hormuz, so that shipping lines can make themselves comfortable to go through.’
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