Brent crude futures rose by 47 cents, or 0.6%, reaching $79.43 a barrel, while U.S. West Texas Intermediate increased to $76.53 a barrel, up 48 cents, or 0.6%, as of 0038 GMT. The gains come after both benchmarks fell about 5% for two consecutive sessions, hitting three-month lows on hopes that a U.S.-Iran deal would facilitate oil flows through the Strait of Hormuz.
The oil markets initially retreated on expectations that the Strait of Hormuz would reopen following a peace agreement between the U.S. and Iran. However, traders are cautious, awaiting more details before making further moves. The interim peace deal, announced by U.S. President Donald Trump, aims to prevent Iran from developing nuclear weapons and allows Iran to sell oil upon signing. This memorandum of understanding extends a ceasefire announced in April by another 60 days to negotiate a permanent truce.
Under the deal, the U.S. would lift its blockade of Iran's ports, while Tehran would allow oil tanker traffic through the Strait, which has been effectively blocked since U.S. and Israeli strikes on February 28. Despite these developments, industry officials warn that a full return to pre-war production and refining levels could take weeks, months, or even years.
“Oil markets retreated on expectations the Strait of Hormuz would reopen following the peace agreement, but traders held off further selling pending details.”
Hiroyuki Kikukawa, Chief Strategist of Nissan Securities Investment
Israel has distanced itself from both the April ceasefire and the latest U.S.-Iran agreement, adding uncertainty to the truce's durability. Israeli drone strikes in southern Lebanon on Tuesday, which resulted in casualties, further complicate the geopolitical landscape.
Meanwhile, China's crude oil throughput in May fell 9.1% year-on-year, reaching its lowest level in nearly four years. This decline indicates that Chinese refiners are starting to draw on stockpiles amid the ongoing Iran conflict. Additionally, the American Petroleum Institute reported a significant drop in U.S. crude stocks by 8.3 million barrels for the week ending June 12, surpassing expectations of a 4.6 million barrel draw.
Background
The U.S.-Iran peace deal is a significant development in the geopolitical landscape, potentially impacting global oil supply and prices. The Strait of Hormuz is a critical chokepoint for oil transportation, and its reopening could stabilize markets. However, regional tensions, particularly involving Israel, add complexity to the situation.
As the situation unfolds, market participants will closely monitor the developments surrounding the U.S.-Iran peace deal and its impact on oil flows through the Strait of Hormuz. The durability of the ceasefire and the response from regional players like Israel will be key factors influencing oil prices in the coming weeks.
