Oil prices dropped to $89 per barrel on Wednesday, influenced by news that a potential peace agreement between Iran and the US could reopen the Strait of Hormuz in about a month.
This marks a significant decrease from just a week ago when crude oil futures were over $107 per barrel.
Prices fell another 5.6% as markets remained optimistic about the possibility of a peace deal that might resolve the ongoing four-month conflict.
A key factor driving this decline appears to be an announcement on Iranian state television regarding an informal initial draft for a memorandum of understanding (MOU) with the US to conclude the hostilities.
The proposed MOU would allow Iran to restore commercial shipping through the strait—crucial for transporting 20% of the world’s oil supply—within a month, while the US would pull its troops back from the region and lift its naval blockade.
However, the framework isn’t finalized yet, and President Trump indicated some hesitance, especially as concerns arose from congressional allies about not adequately addressing Iran’s nuclear ambitions.
As reported by state media, Iran has stated that it will not take any steps without “concrete verification.”
In recent weeks, oil prices have fluctuated considerably amid uncertainty regarding the peace talks, and on Wednesday, West Texas Intermediate prices reached their lowest point in over a month.
John Diehl, managing director of capital markets at Post Oak Group, noted, “When there is so much uncertainty, traders have to theorize about what they think will happen.” He also expressed that the situation is quite binary—if a deal is struck, prices could dip further, but if not, we might still see rising prices.
Other analysts remain doubtful about whether Iran will follow through on the agreement.
“We’ve had near-misses and unclear details over the past few months, and Hormuz is still closed,” remarked Rory Johnston, founder of the newsletter Commodity Context.
