Oil prices continue to decline as barrels speed their return from Hormuz to the markets

SadaNews - Brent crude has wiped out all its gains during the war, as flows through the Strait of Hormuz increased following progress in a peace agreement between the United States and Iran.

The global benchmark continued to decline for the fourth session, dropping below $72.48 a barrel, which was its closing price prior to the war, before fluctuating around that level. West Texas Intermediate hovered near $69.

Key parts of the market have suddenly become flooded with supply, overwhelming buyers with offers from both the Middle East and Africa, in a dramatic reversal that has led to widespread price weakness.

The United States and Iran have indicated progress after preliminary talks to end the war, although their claims sometimes diverged, and further negotiations on topics including nuclear policy and a ceasefire in Lebanon are likely to face hurdles. Nevertheless, early optimism regarding a permanent agreement has led to more tankers crossing the Strait of Hormuz openly, operating their signals via satellite.

Why are oil prices falling rapidly despite exports not returning to pre-war levels?

Caroline Keesan, the associate dean at NYU’s Center for Global Affairs, stated, "It’s quite astonishing, the shift in price and narrative even compared to where the market was less than two weeks ago." She added, "The idea that we are shifting to seeing more supply with declining demand has really driven the downward turn in prices."

Increased supply puts pressure on prices

The increase in oil availability has driven the actual prices of barrels down from Angola to the UAE. The spot spread for Brent crude, closely monitored by the market, shifted to a bearish contango structure on Wednesday for the first time since the war began.

On a closing basis, West Texas Intermediate is also nearing its pre-war price of $67.02 per barrel, having peaked during the conflict slightly above $119 in March. Other prices, including dated Brent, the key actual oil benchmark, which exceeded $140 to reach a record high, have also dropped.

"Bloomberg": The reopening of the Strait of Hormuz floods oil markets with a surprising surplus

A temporary U.S. exemption allowing the purchase of Iranian oil that has already been loaded is expected to add to supply. However, there are still financing and insurance-related obstacles that are likely to limit sales.

Other issues likely to raise concerns include Iran possibly seeking to impose a toll for transit through Hormuz. Trump told reporters on Wednesday that such fees would be a "red line" in U.S. negotiations with Tehran, stating that he would reject a final agreement if these fees were included.

Much of the success in resolving the oil supply issue following the outbreak of the war has come at the expense of inventories that will need replenishing, including in the United States. Inventories at Cushing, Oklahoma, dropped to about 19 million barrels last week, below the level considered the minimum required for operation.