Crude Extends Slide on Iran Accord
by Bloomberg | M. Gindis, A. Longley, G. Smith
click here to read this article at Rigzone.com
*this article was not written by Roseland Oil & Gas
Oil prices plunged after the US and Iran agreed to an interim deal aimed at reopening the Strait of Hormuz.
Oil sank to the lowest since early March after the US and Iran agreed to an interim deal to reopen the Strait of Hormuz, though shipowners were still hunting for more details before committing to resuming transits.
Brent tumbled 4.8% to settle at near $83 a barrel while West Texas Intermediate ended the day near $81. Prices are now more than 30% lower than their peak at the height of the war.
US President Donald Trump said in social media posts he was authorizing the “toll free opening” of Hormuz, as well as ending a naval blockade of the Islamic Republic, with the strait to reopen when the deal is signed on Friday. Iran’s semi-official Fars News Agency said transits would be free of charge for 60 days.
While the US leader heralded the move to “let the oil flow!,” traders and analysts struck a more cautious tone, highlighting the lack of released text by either side, hurdles for the shipping industry to restart transits of the waterway, and a drawn-out timeline for fields to restart pumping.
“Ships are starting to go out now, on Friday it’ll be completely opened,” Trump said at the Group of Seven summit in Evian, France.
Still, there was little sign of a sudden upturn in traffic by lunchtime in New York on Monday. On the sidelines of the G7, it was apparent that European allies don’t share the US leader’s optimistic outlook for a swift reopening of the critical oil chokepoint.
Iran Deputy Foreign Minister Kazem Gharibabadi confirmed an agreement was reached, but said the text would be published only after the signing event in Switzerland. US Vice President JD Vance is likely to represent the administration at the signing.
Global energy markets have been in thrall to the war since it erupted in late February, when the US and Israel attacked Iran to curb its nuclear program. Tehran’s response included strikes across the Persian Gulf and shuttering Hormuz, which in peacetime carried about a fifth of global oil flows.
US forces subsequently imposed their own blockade of Iran-linked vessels, but in recent weeks growing volumes of oil from other Persian Gulf countries have been escaping Hormuz, helping bring prices back down. The question now is how soon the agreement can add even more supply to the market. Israel, for its part, isn’t in favor of the deal.
“There’s just one litmus test for all policy interventions: does it sufficiently reassure ship operators to resume normal operations?” said Clay Seigle, non-resident scholar at the Center for Strategic and International Studies in Washington DC. “That’s the whole game.”
Meanwhile, the oil market has pulled on a variety of levers to ease the risk of a major price spike. China has dramatically scaled back imports and there has been a record release of barrels from emergency reserves. Repeated signals that Washington and Tehran were close to an agreement also helped push prices lower.
A sustained drop in oil prices may reduce inflationary risks for policymakers including at the Federal Reserve, which will review interest rates this week. Beyond oil, European natural gas futures sank as much as 10.1% on Monday, stocks climbed on hopes for the war’s end, while gold and copper rose as the US dollar weakened.
Other hurdles to Hormuz’s reopening include the clearing of mines, as well as clarity on Tehran’s desire to exercise greater control over vessels passing through. And risks to navigating Middle Eastern waters remain: a vessel was reportedly targeted off the coast of Yemen as recently as Monday.
Oil Prices
- WTI for July delivery slid 4.9% to settle at $80.75 a barrel in New York.
- Brent for August settlement fell 4.8% to $83.17 a barrel.
In a sign of the market’s shifting dynamics, Brent’s prompt spread — the difference between its two nearest contracts — narrowed to less than $1 a barrel in backwardation. While that remains a bullish pattern, with the nearer contract above the next in line, it is down from more than $12 in April.
The US benchmark’s prompt spread remains relatively well supported amid fears of so-called “tank bottoms” at the key Cushing, Oklahoma, storage hub. US emergency crude reserves have fallen to the lowest level since 1983.
Traders will be on alert for signs of the potential restart of crude output from Persian Gulf fields that were shut-in during the conflict. Producers have warned that reviving supplies in full could take months given the technical and geological challenges, as well as damage to infrastructure.
The interim deal between Washington and Tehran sets the stage for 60 days of talks on the fate of the Islamic Republic’s nuclear program.
by Bloomberg | M. Gindis, A. Longley, G. Smith
click here to read this article at Rigzone.com
*this article was not written by Roseland Oil & Gas