Oil price to fall as Ships get in position for oil to start flowing from the Gulf again after US, Iran deal
An agreement between the U.S.
An agreement between the U.S. and Iran that reopens the Strait of Hormuz to shipping promises to knock down oil prices and ease the upward pressure on costs for transport, manufacturing, food and consumer fuels across the world. But the benefits of a deal would be uneven and take time to filter through. It will take time to clear out the bottleneck in the strait, and shippers said they would need to see an extended period of calm before they are confident enough to sail normally through it. Seafarers said Sunday that some ships stuck in the Persian Gulf already have started moving toward the strait in anticipation of a deal that opens the critical waterway. The route out of the oil-rich Gulf is typically the conduit for about 20% of the world’s petroleum supply. A reopening would reduce inflation pressures, which, in turn, could give central banks more room to hold interest rates steady or revive rate-cut plans, especially in oil-importing economies, while also supporting household spending and corporate margins. Still, it would be difficult to return energy supplies to their prewar level quickly given the damage to facilities, halted oil production and broader obstacles to shipping through Hormuz, said Hamad Hussain, commodities economist at Capital Economics. “All of this will keep oil prices elevated for some time—prices would only start to trend lower as and when the supply-demand balance in the oil market materially improves, which is likely to be well into 2027,” Hussain said. In addition, fuel prices could take longer to decline than crude-oil prices because of depleted inventories and damage to production facilities. Global stockpiles—which governments rushed to drain as Middle Eastern supplies dried up—have fallen at a record pace since the start of the war. They plunged by 250 million barrels over March and April, according to the International Energy Agency, a Paris-based club of energy-consuming nations. A deal would stop the bleeding, but the world then has to refill depleted tanks. A framework deal for talks between the U.S. and Iran, which President Trump said Saturday was nearly finalized, “reduces the risk of escalation and increases the chance the conflict would be over, which could start the path to rebuilding, repositioning and reopening of key supply chains,” said Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security, a Washington-based think tank. But, she said, that depends on whether the deal is merely another cease-fire extension or the start of a more lasting settlement. “A lot depends on the terms,” she said. The deal that was coming together over the weekend would extend the current cease-fire while the two sides reopen the Strait of Hormuz and begin talks on Iran’s nuclear program. Assuming shipping traffic through Hormuz picks up in June, the U.S. Energy Information Administration recently forecast that the price of international benchmark Brent crude will average $89 a barrel at the end of this year and $79 in 2027. On Friday, front-month Brent closed at $103.54 a barrel. The price started this year around $60.
