– Prices at three-month lows, but above pre-war levels
– Some analysts expect Hormuz flows to resume in several weeks
– US uses an Iranian smuggling tactic to sneak oil out of the Gulf
London – Oil prices fell about 4% on Tuesday to fresh three-month lows as markets weighed prospects for a resumption of supplies through the Strait of Hormuz alongside weaker physical demand and scant details on a preliminary deal to end the Iran war.
Brent crude futures were down $3.20, or 3.85%, at $79.97 a barrel at 1253 GMT. They earlier touched $79.61, the lowest since March 3, and the first time they have fallen below $80 since that day.
U.S. West Texas Intermediate was down $3.52, or 4.36%, at $77.23 a barrel. WTI’s intra-day nadir of $76.88 was the lowest since March 10.
Before the war started on February 28, Brent and WTI futures were trading around $65-70 per barrel.
Oil prices sank nearly 5% on Monday after U.S. President Donald Trump announced an interim deal to end the U.S.-Israeli war with Iran, though full details have not been released.
Iranian Foreign Minister Abbas Araqchi said on Tuesday that Iran and the U.S. would start a new round of talks in Switzerland on Friday to reach a final agreement.
“Near-term downside risks remain as the market prices a faster reopening of the Strait and a return of stranded barrels,” Saxo Bank analyst Ole Hansen said.
However, depleted inventories, seasonal demand, strategic stock rebuilding and lingering geopolitical uncertainty suggest the path back to pre-war prices may be far less straightforward than current market optimism implies, Hansen said.
INVESTORS EYE STRAIT REOPENING
The conflict led to the closure of the Strait of Hormuz, which typically carries about one-fifth of global oil supplies.
So far, few tankers have crossed the strait since the framework agreement was announced, though ships have been quietly moving barrels along Oman’s coast for weeks, sailing “dark” with U.S. navy support. Shippers are awaiting reassurance on safety to cross the strait, including the clearing of mines.
The U.S. military has overseen scores of secretive ship-to-ship oil transfers to keep Gulf energy exports flowing, using aerial and water drones as well as helicopters in an operation to guide convoys to awaiting tankers.
Early indications suggest the U.S.-Iran deal would reopen the blockaded strait and extend a ceasefire for 60 days, buying time for negotiations on issues including Iran’s nuclear programme.
Some analysts expect flows through the strait to resume soon, adding to downward pressure from already soft physical markets.
Goldman Sachs lowered its fourth-quarter Brent forecast to $80 a barrel from $90 and cut its 2027 average estimate to $75 from $80, saying it now assumes Gulf exports return to pre-war levels by the end of July rather than late August.
With details still unclear and a permanent truce yet to be secured, and potential for a long recovery period to oil flows after the strait reopens, other analysts say volatility risks remain.
“Even in the best-case scenario – in which the Strait of Hormuz is sustainably reopened – it is likely to take quite some time before shipping traffic, and thus energy exports from the Gulf region, have normalised again,” Commerzbank analysts said in a note.
Commerzbank forecasts a Brent price of $85 per barrel at the end of this year, and a return to pre-war levels of around $65 per barrel next year.
*Stephanie Kelly & Robert Harvey, Anushree Mukherjee & Pranav Mathur and Trixie Yap. Editing: Clarence Fernandez, Mark Potter & Susan Fenton – Reuters
