Oil prices fell by more than 4 per cent to trade below $80 per barrel on Tuesday amid prospects of a resumption of supplies through the Strait of Hormuz after the US and Iran reached an agreement to end the Middle East war.
Brent, the benchmark for two thirds of the world's oil, was down by 4.03 per cent to $79.82 a barrel at 3.46pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was trading 4.48 per cent lower at $77.13 a barrel.
Oil prices fell “as markets increasingly priced in the prospect of a US-Iran agreement that could restore energy flows through the Strait of Hormuz”, said MUFG research analyst Soojin Kim.
“Optimism surrounding a gradual recovery in Gulf exports has reduced the geopolitical risk premium built up during the conflict,” Ms Kim said.
US President Donald Trump on Sunday announced the deal and authorised the strait to be reopened immediately.
An official signing ceremony is expected to take place in Geneva on Friday.
If fully implemented, the agreement would bring an end to a conflict Mr Trump launched alongside Israel on February 28, which has disrupted trade and roiled global oil markets, with prices rising to nearly $120 per barrel in March.
The strait, from which more than 20 per cent of global crude and LNG supplies flow, has been virtually shut since March, leading to severe disruption of supplies to global markets and a fall in inventories.
Global petrol and gas prices have surged due to disruptions in the Middle East. Energy infrastructure in the Gulf region has also been damaged amid drone and missile attacks by Iran.
Only a few ships were able to transit the strait compared with more than 100 a day before the conflict. The narrow channel between Oman and Iran is a vital route for the supply of crude to Asia’s biggest economies, including China, India and Japan.
Shipping traffic along the strait is expected to recover gradually once the deal is signed. Vessel owners will remain cautious due to safety concerns and the presence of sea mines in the area.
Ms Kim forecasts that Brent will remain in the $80-$90 per barrel range in the near term as “improving supply prospects offset still-tight inventories and lingering geopolitical risks”.
