Oil Prices Near Lowest Level in Three Months Amid Expectations of Increased Supply

SadaNews - Oil prices stabilized near their lowest level in three months, amid expectations that a U.S.-Iran agreement to reopen the Strait of Hormuz will lead to a significant increase in supply.

Brent crude is trading below $80 a barrel, after a 15% drop over four days, marking the longest losing streak this year, while West Texas Intermediate crude stabilized around $77. The temporary agreement, scheduled to be signed on Friday, provides Tehran with wide financial incentives, including the right to sell its oil immediately.

Crude oil prices have sharply declined in recent weeks, as moves to end the war between Washington and Tehran eased tightness in global energy markets. Producers, shipping companies, and traders are now assessing whether the agreement will be sustainable, and how long it will take to seriously revive vessel transit through the Strait of Hormuz.

Mine Clearance from the Strait of Hormuz

Dennis Kessler, senior vice president of trading at BOK Financial Securities, said, "Most traders still believe that U.S. naval operations will likely accompany vessels during the first few weeks, and mine clearance ships will also be present, which will slow traffic." He added, "However, the futures market always looks to the future, and currently the chances of oil movement are increasing."

While technical details are still being finalized and some phrasing may be modified, the draft 14-point memorandum provides the clearest picture so far of the agreement, which will pave the way for 60 days of talks aimed at officially ending the war and imposing new strict restrictions on Iran's nuclear program.

The points include a requirement for Tehran to ensure the movement of merchant ships and for the United States to lift its blockade on Hormuz. The narrow waterway connects the Persian Gulf to the Indian Ocean and transported about one-fifth of the world's oil supplies during peacetime.

The U.S. commitment to issuing waivers for Iranian crude oil exports, petrochemical products, and all related services, including banking, insurance, and transportation, is also being addressed.

The rapid slowdown in the market is reflected in the notably decreased immediate profit margin for Brent crude, as the difference between the two nearest contracts for the benchmark crude fell to just 29 cents per barrel in Wednesday's decline. Although this is still a positive indicator - with the nearest contract price outperforming the farther contract price - the spread had decreased to $9.65 in early April due to concerns about short-term supply.

Gasoline Prices in America Decline

The decline in crude oil prices has contributed to lower product prices, relieving inflationary pressures and the burden on consumers. In the United States, the national average gasoline price has fallen to about $4 a gallon, after peaking above $4.56 in May.

The impact of energy cost fluctuations will be among the factors discussed on Wednesday at the Federal Reserve, as monetary policymakers meet to decide on interest rates. No change in borrowing costs is expected at this meeting.

Despite widespread expectations for a rebound in supply, crude oil inventories are still being depleted at a rapid pace. One U.S. industry group estimated that oil stocks fell by 8.3 million barrels last week, including a significant decline at the key storage hub in Cushing, Oklahoma. Official data is scheduled to be released later on Wednesday.

Brent crude for August delivery rose 0.7% to $79.49 a barrel at 8:27 a.m. in Singapore, while West Texas Intermediate crude for July delivery increased 0.7% to $76.61 a barrel.