Oil prices experienced a slight decline on Wednesday, continuing the downward trend from the previous day as market participants evaluated the implications of a peace agreement between the U.S. and Iran. However, the uncertainty surrounding the complete reopening of shipping routes through the Strait of Hormuz has prevented more significant price drops.
Brent crude futures decreased by 16 cents, or 0.2%, settling at $78.80 per barrel by 0340 GMT. Meanwhile, U.S. West Texas Intermediate (WTI) fell by 25 cents, or 0.3%, to $75.80 per barrel.
Both oil benchmarks had seen a drop of approximately 5% for two consecutive sessions, reaching three-month lows, fueled by optimism that the U.S.-Iran agreement could facilitate oil transportation through the Strait.
Priyanka Sachdeva, a senior market analyst at Phillip Nova, noted, “The markets are generally removing the geopolitical risk premium that has been factored into oil prices. However, the journey toward normalcy is complex. Although political negotiations appear to be advancing, actual tanker traffic in the Strait has not yet returned to pre-conflict levels.”
The agreement proposes that the U.S. would lift its blockade on Iran’s ports in exchange for Tehran permitting oil tanker transit through the Strait, which has been restricted since U.S. and Israeli military actions on February 28.
Hiroyuki Kikukawa, chief strategist of Nissan Securities Investment, commented, “Oil markets have retreated due to expectations that shipping through the Strait of Hormuz will resume following the peace deal, but traders are cautious about selling further until more details are known.”
Kikukawa also indicated that WTI is expected to remain volatile, fluctuating within a $10 range above or below $80 per barrel.
Prior to the shipping restrictions, nearly 20% of global crude oil and liquefied natural gas traveled through the Strait.
Initial details of the temporary peace deal surfaced on Tuesday, with President Donald Trump stating it would eliminate the threat of nuclear weapons for Iran, while a U.S. official noted it would enable Iran to sell oil once the agreement is signed.
The memorandum of understanding, which has not yet been made public, extends by 60 days a fragile ceasefire established in April, allowing time for discussions aimed at achieving a permanent peace settlement.
However, industry experts predict that a complete restoration of production and refining capabilities to pre-war levels could take weeks, months, or even years.
Israel has distanced itself from both the April ceasefire and the newly formed U.S.-Iran agreement, raising doubts about the durability of the pact.
On Tuesday, Israeli drone strikes targeted three vehicles in southern Lebanon, resulting in at least four fatalities and several injuries, according to Lebanon’s National News Agency, which led to an unusual public criticism from Trump.
Data indicated that China’s crude oil processing declined by 9.1% in May compared to the previous year, reaching its lowest level in nearly four years, suggesting that refiners are beginning to tap into reserves amid the ongoing conflict with Iran.
A report from the American Petroleum Institute revealed that U.S. crude inventories fell by 8.3 million barrels in the week ending June 12, surpassing forecasts of a 4.6 million barrel decrease. Official figures from the Energy Information Administration are expected to be released at 10:30 a.m. ET (1430 GMT) on Wednesday.
Financial Chronicle Biz English | Sri Lanka Business News.
