The decline follows the signing of a Memorandum of Understanding (MoU) between Washington and Tehran, which has raised expectations of a gradual recovery in global oil supplies and a reopening of the strategically important Strait of Hormuz.
Image: CN-STR / AFP
Brent crude oil prices fell below $77 a barrel on Tuesday, extending losses and reaching their lowest level in almost three months, as markets reacted positively to signs of progress in peace negotiations between the United States and Iran.
The decline follows the signing of a Memorandum of Understanding (MoU) between Washington and Tehran, which has raised expectations of a gradual recovery in global oil supplies and a reopening of the strategically important Strait of Hormuz.
Under the agreement, the US granted Iran a 60-day licence to sell oil on international markets, a move that has fuelled expectations that supply disruptions caused by months of conflict could begin to ease.
Shipping activity through the Strait of Hormuz has also increased, while major Gulf producers, including Kuwait and the United Arab Emirates, have secured alternative export routes. Iran has reportedly shipped more than 30 million barrels of oil over the past week.
Despite the optimism, uncertainty remains over the future of Iran’s nuclear programme. US Vice President JD Vance recently claimed that Tehran had agreed to admit international nuclear inspectors, an assertion that Iranian officials have rejected.
Commenting on the market reaction, Old Mutual Wealth investment strategist Izak Odendaal cautioned that the agreement does not guarantee lasting peace.
“An MoU does not, of course, guarantee peace. Flare-ups and incidents remain likely in the 60-day period while both sides negotiate the thorny issues related to Iran’s nuclear programme,” said Odendaal.
“Nonetheless, reaching an MoU strongly suggests both the US and Iran want to put the war behind them. At any rate, markets didn’t wait for the finer details - they rarely do - and immediately started positioning for a post-war world which includes a gradual reopening of the Strait of Hormuz.”
He noted that investors had already begun adjusting their positions weeks before the agreement was signed, highlighting the difficulty of timing market movements.
“The upshot is that crude oil tumbled to $80 for the first time since March on Friday. This move might be a bit overdone given the uncertainties, but few will complain since the price is now well below the late April peak,” he said.
Energy consultancy Wood Mackenzie has revised its outlook for oil prices in response to the changing geopolitical environment.
The firm now expects Brent crude to average $78 a barrel in 2027 and potentially decline to $70 a barrel by the fourth quarter of next year, assuming shipping flows through the Strait of Hormuz return to normal by August.
According to Wood Mackenzie, investor sentiment shifted rapidly after the agreement was signed. The firm noted that speculative positioning for higher Brent prices fell by about 80% from a five-year high during the four weeks to 16 June.
The consultancy estimates that the conflict removed more than 11 million barrels per day of crude supply from global markets. It expects around 70% of these shut-in volumes to return within three months of the Strait reopening and 90% within six months.
“A prolonged closure would have pushed Brent well above $150 a barrel,” said Alan Gelder, senior vice president for macro oils at Wood Mackenzie.
“The MoU changed that trajectory. But the full value chain, from wellhead through to Gulf Cooperation Council ports, will take the better part of a year to fully recover.”
He added that refining margins remain elevated despite recent improvements.
“Jet crack spreads running at almost double pre-war levels are the clearest signal that this market has not yet normalised. Getting the barrels back is a different challenge from reaching a deal.”
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