Oil Prices Drop After Ceasefire Agreement Between Israel and Lebanon

SadaNews - Oil prices fell after three days of gains, following an agreement between Israel and Lebanon to cease fire if Hezbollah also halts hostilities, which removes a major point of contention in discussions between Washington and Tehran.

Brent crude dropped to around $97 a barrel, while West Texas Intermediate was close to $96, having added nearly 10% in the first three sessions of the week. The deal is conditional on a "complete" ceasefire from Iran-backed Hezbollah, according to a statement from both countries and the United States.

Washington and Tehran Agreement

Washington and Tehran have agreed on a rough framework to extend the ceasefire for two months and reopen the Strait of Hormuz, but negotiations on the final details are still ongoing amid a resurgence of fighting.

The semi-official news agency Tasnim reported that the Iranian Foreign Minister stated that "no tangible progress" has been made in the talks and that Iran is ready to target sites within Israel if attacks on Beirut continue.

Oil has erased the decline seen last week, as clashes drained optimism regarding a deal to extend the current ceasefire and possibly resume flows through the strait. With negotiations ongoing, global reserves are rapidly depleting. U.S. government data on Wednesday showed that crude inventories at Cushing, Oklahoma, the delivery point for West Texas Intermediate, fell for the sixth week to near what is known as the minimum operational level.

Oil Price Forecasts

Although the ceasefire between Israel and Lebanon may reduce upward risks to prices in the near term, as long as the strait remains closed, Brent crude is likely to surge up to $130 in the fourth quarter as global inventories tighten, according to Robert Renni, head of commodity research at Westpac Banking Corp. He added: "The market is asleep at the wheel, even as we speed towards an aggressive tightening in crude and product markets."

U.S. President Donald Trump stated that the Strait of Hormuz would be "immediately" opened upon Iran signing a memorandum of understanding to cease armed hostilities "provided that some areas, including mines, are cleared." He downplayed the threat of mines in the strait on commercial shipping.

The main focus of the oil market remains on the key waterway, through which about a fifth of global crude oil usually passes. The effective paralysis of the choke point under a dual blockade from Tehran and Washington has driven up fuel prices, as ship movements remain restricted.

Meanwhile, the Republican-led House of Representatives voted to halt the U.S. war with Iran, demonstrating that concerns over the conflict are spreading within the president's own party less than five months before the midterm elections.

This move will not end U.S. military attacks on the Islamic Republic, as the Senate still has to pass the resolution, and the provisions of the War Powers Act of 1973 upon which the House relied are legally contentious in any case.