Oil prices fell significantly on Monday 15 June as US and Iranian officials announced they had reached a preliminary agreement designed to end ongoing hostilities and reopen the Strait of Hormuz.
The strait is a major global shipping channel for oil and liquefied natural gas (LNG).
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The announcement caused Brent crude futures to fall by $4.08, or 4.7%, to $83.25 per barrel (bbl) by 04:15 GMT. US West Texas Intermediate fell by $4.35, or 5.1%, to $80.53/bbl, reported Reuters.
Both contracts posted their lowest settlements since 10 March. The drop continued losses from Friday, when both benchmarks fell by more than 3%.
The war, which led to the closure of the Strait of Hormuz for over three months, has disrupted the movement of an estimated one fifth of the world’s oil and LNG supply. The resulting supply constraints have affected global markets, with millions of barrels of oil and gas unavailable during the period.
According to Pakistan Prime Minister Shehbaz Sharif, whose country acted as a mediator in the negotiations, the US and Iran will formalise their memorandum of understanding in Switzerland on Friday 19 June.
President Donald Trump said on Sunday that the US would lift its naval blockade on Iranian ports and the strait would reopen “toll free”.
Meanwhile, Iran’s semi-official Mehr news agency reported that the draft agreement proposes reopening the strait within 30 days, managed by Iranian authorities.
On the Iranian side, Deputy Foreign Minister Kazem Gharibabadi confirmed that a broader accord would be discussed during a scheduled 60-day ceasefire.
Investors are monitoring how quickly Middle Eastern producers will be able to restore oil production and exports after infrastructure damage from the conflict, as well as whether more vessels will enter the Gulf region.
Last week, US Energy Secretary Chris Wright, speaking at a Bloomberg Energy event in Houston, said: “Roughly seven million barrels a day of oil are getting out of the Persian Gulf with US military help. That is about half of the flow of oil that has been stuck in the Strait of Hormuz since the US-Israeli war with Iran began.”
He added that no Iranian oil exports are currently leaving the strait. Wright also indicated that the free movement of all products through the Gulf was likely if an agreement held, but US military support would continue if not.
In another development, the E4 group, consisting of the UK, France, Germany and Italy, announced their readiness on Sunday to lift sanctions on Iran in response to actions by the country regarding its nuclear programme.
