(RTTNews) – Reversing the gains from yesterday’s session, crude oil prices have edged lower on Thursday following the reopening of the Strait of Hormuz and the resumption of the free flow of oil from the gulf. Concerns related to early restoration of output in Arab nations restricted the downside movement.
WTI Crude Oil for July month delivery was last seen trading down by $0.53 (or 0.69%) at $76.26 per barrel.
Yesterday, at the conclusion of the G7 summit in France, U.S. President Donald Trump signed a Memorandum of Understanding with Iran during a dinner hosted by French President Emmanuel Macron at the Palace of Versailles.
The U.S. forwarded the document to Iran which was later signed by Iran’s President Masoud Pezeshkian.
Today, Pakistan’s Prime Minister Shehbaz Sharif co-signed as a mediator to the agreement. Sharif stated that the MoU takes effect from Wednesday.
Pakistan and Qatar were supposed to host an official signing ceremony in Switzerland tomorrow. However, now that the MoU is signed, it is unclear if the event will take place.
Giving top priority to the Strait of Hormuz issue, the deal pushes Iran to reopen the strait immediately. Iran and its gulf neighbors will discuss new ways of managing the strait, possibly even allowing Iran to collect a toll.
Data from Marine Traffic revealed that since yesterday, seven vessels (including four cargo ships) have transited the strait so far.
Reportedly, more than 60 million barrels of crude oil remain stuck in the Persian Gulf waiting to exit the crucial Strait of Hormuz to head towards Asian markets in nearly 36 supertankers.
According to Kpler, around 90 million barrels of non-Iranian crude and 70 million barrels of Iranian oil are waiting to leave the gulf.
According to the preliminary arrangement, U.S. and Iran will negotiate all sticking points in their relations during the 60-day ceasefire period.
The U.S. will waive sanctions imposed on Iranian oil exports. In April, crude oil exports from Iran averaged nearly 1.5 million barrels per day, 20% lower than March. Over May, the exports dropped to a mere 260,000 bpd.
The deal commits the U.S. and regional partners of Iran to develop and finance Iran with a $300 billion reconstruction fund. So far, no gulf nation has publicly committed to mobilize the funds.
The Paris-based International Energy Agency predicted the risk of a potential global oil supply glut if the peace deal holds, speculating that the supply will rebound by 8 million barrels to 110.30 million barrels a day in 2027.
Demand is projected to increase modestly to 105.30 million bpd, nearly 5 million barrels less than supply.
The energy watchdog expects global oil demand to plunge by 1.1 million barrels a day through 2026, three times downgraded than its forecast in the previous month. Supply is expected to drop by 3.9 million bpd year-on-year in 2026 before rebounding to 110.30 million bpd next year.
The IEA also warned that full recovery of output in the gulf region may not be immediate.
With concerns related to high ship insurance costs, safety issues due to sea mines planted by Iran, production halts, etc., several analysts have cautioned that reopening of the strait is not the same as restoring oil flows.
On the monetary front, yesterday the U.S. Federal Reserve maintained interest rates at the current 3.50% to 3.75% range. The projections by the Federal Open Market Committee hinted at possible rate hikes this year.
According to the CME Group FedWatch Tool, investors are currently betting at a 65.80% chance that the Fed will hold the rates at the current level while the odds of a quarter-point hike stand at 34.20% in its upcoming July 28-29 meeting.
The U.S. Dollar Index was last seen trading at 100.79, up by 0.44 points (or 0.44%).
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