Oil prices hovered near their lowest levels in three months on Wednesday 17 June as investors assessed the possible effects of a peace agreement between the US and Iran.
As of 08:18 GMT, Brent crude futures were up by $0.02 at $78.98 per barrel (bbl), reported Reuters.
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Meanwhile, US West Texas Intermediate (WTI) crude edged $0.03 higher to $76.08/bbl.
Both benchmarks had dropped by roughly 5% in the previous session, adding to declines triggered by hopes that an agreement between the US and Iran may allow additional oil exports through the Strait of Hormuz.
Initial details of the peace deal emerged on Tuesday, with a US official saying that Washington would permit Iran to sell oil once the agreement was signed.
The memorandum of understanding, which is not yet public, reportedly extends an April ceasefire by a further 60 days to facilitate negotiations for a lasting truce.
Israel has not aligned itself with either the April ceasefire or the most recent US-Iran agreement, adding to doubts over the durability of the truce.
Industry observers caution that a return to pre-war production and refining rates in Iran may remain a lengthy process.
Furthermore, new projections from the International Energy Agency (IEA) also indicated a significant supply surplus by 2027.
The IEA’s latest outlook suggests that by 2027, global oil supply may increase by eight million barrels per day (mbbl/d), with demand forecast to rise by only 2mbbl/d.
In the short term, the IEA stated that the interim deal between Iran and the US could create conditions for restocking depleted inventories or building new strategic reserves.
Meanwhile, China’s crude oil throughput dropped 9.1% year-on-year in May to its lowest level since 2020, reflecting reliance on existing stockpiles amid ongoing tensions.
A report by TS Lombard’s Rory Green said China’s oil and gas resilience was bolstered by strategic commodity stockpiles and a shift towards non-fossil energy, reducing exposure to global supply shocks. It also said China was well-placed to absorb higher oil prices, but that a Strait of Hormuz closure remained a major risk to growth.
Meanwhile, data from the American Petroleum Institute indicated a fall of 8.3 million barrels (mbbl) in US crude stocks for the week ending 12 June, surpassing expectations of a 4.6mbbl decrease.
Shore Capital equity analyst James Hosie said: “The Brent spot price is now back to its lowest level since early March at around $83/bbl as markets digest the increasingly optimistic tone that the US and Iran are to sign a framework agreement to end the current conflict.
“Critically, the agreement includes the reopening of the Strait of Hormuz, with both sides ending their blockades. A full recovery of Middle East oil, LNG [liquefied natural gas] and oil products supply will take time, but we see this news as removing the threat [of] a continuation of the existing stalemate driving a further spike in oil prices if inventory drawdowns had continued through the summer.”
