BENGALURU — Oil Prices Drop to Pre-Iran War Levels
Oil prices experienced a decline on Thursday, reaching levels not seen since just before the Iran conflict began. This drop was largely influenced by expectations of increased supply from the Middle East, which overshadowed concerns regarding demand.
As of 13:27 Japan time, the August futures for Brent crude fell by 25 cents (0.34%), settling at $73.49 per barrel. Meanwhile, US West Texas Intermediate prices also dropped by 24 cents (0.34%), bringing the price to $70.10 per barrel. Both contracts marked their lowest rates since February 27, the day before military actions against Iran commenced.
The Brent price for August is currently lower than the September price, which was $73.83 at 1:27 PM Japan time. This suggests that short-term supply is relatively abundant.
According to Rystad Energy analyst Janib Shah, the backlog of ships in the Persian Gulf is being resolved, leading to what he describes as “a wave of supply.” This, he suggests, points to a resumption of supply assets as terminals are reopening.
U.S. Energy Secretary Chris Wright reported during a forum that traffic through the Strait of Hormuz is nearing pre-war levels, with around 20 million barrels having passed through the strait in the last 24 hours. Yet, he noted that full normalization might take weeks as the strait requires demining.
UBS analyst Giovanni Staunovo emphasized that the majority of increased flows from the Gulf are expected to go outward, with ships leaving the Channel. He also pointed out that increased import volumes hinge on restoring transport security, which includes ensuring safety and addressing demining to adjust insurance costs back to normal.
Physical crude oil cargo prices worldwide have seen declines due to rising supplies in the Middle East and a projected increase in Iranian exports after a temporary easing of U.S. sanctions.
Goldman Sachs has expressed skepticism about a significant rise in Iranian production, even if sanctions are lifted beyond the August 21 deadline. On the demand front, China is anticipated to remain a key buyer of Iranian crude, particularly as EU and UK sanctions on Iranian oil still hold.
A deal that was reached last week has allowed for traffic to resume in the strait, which had been effectively blocked by Iran. This negotiation includes a 60-day period aimed at addressing more intricate issues, like Iran’s nuclear program.
Despite uncertainties, Wright reassured that oil will continue to flow through the Strait of Hormuz, suggesting that Iran would not be able to obstruct it again.
In response to these developments, UBS has adjusted its Brent price forecast to $85 a barrel by the end of September and December 2027, and $80 a barrel by the end of March and June.
