Oil down 2% after US, Iran sign ceasefire agreement
The 14-point memorandum begins a 60-day negotiation period during which Iran will allow toll-free passage through the Strait of Hormuz
Highlights:
- Brent, WTI back to early-March level
- U.S.-Iran 14-point agreement extends April ceasefire for 60 days
- Market fundamentals expected to remain tight
- IEA sees significant 2027 oil surplus after Hormuz recovery
Oil prices fell more than $1 per barrel today (18 June) 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 Tehran's oil, boosting the oil supply outlook.
Brent crude futures were down $1.64, or 2.06%, at $77.91 a barrel as of 0427 GMT, and US West Texas Intermediate fell $1.80, or 2.34%, to $74.99 a barrel.
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The benchmarks resumed their decline, reversing gains made on Wednesday after U.S. President Donald Trump said he could resume his bombing campaign if Iran's leaders "don't behave".
"The sell-off extended as energy markets continued to aggressively price in a faster-than-expected return of Iranian barrels following the recent U.S.-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 programme, and also requires the US and its partners to come up with a $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 pre-war levels," he said.
If the US-Iran agreement is successfully implemented and the strait reopened, this year'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 next year 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 this year 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.
