Oil prices drop as supply flows through Strait of Hormuz

Oil prices fell on Friday after signs that more supply may return to the global market following the movement of oil tankers through the Strait of Hormuz. This came after the signing of a US-Iran interim peace deal.

Brent crude futures dropped 54 cents, or 0.68%, to $78.31 per barrel at 0146 GMT. US West Texas Intermediate (WTI) crude fell 46 cents, or 0.60%, to $76.14 per barrel. The more active August contract stood at $75.06, down 79 cents, while the July contract is set to expire on Monday.

Prices had already touched their lowest level since early March on Thursday. This happened after several tankers, including three Saudi-flagged ships carrying about 6 million barrels of oil, passed through the Strait of Hormuz following the US-Iran agreement aimed at ending their war.

Analysts say the deal could bring more than 85 million barrels of oil back into global supply from storage in the Middle East Gulf. The agreement may also lead to the lifting of US sanctions on Iranian oil, which would further increase supply in the market.

“Traders are still waiting for hard evidence that tanker traffic through the Strait of Hormuz is actually normalising before committing to ⁠the next leg lower,” KCM Chief Market Analyst Tim Waterer said.

“Until those ships start moving consistently again, scepticism lingers and keeps a lid on the downside.”

Before the conflict, around one-fifth of the world’s oil and liquefied natural gas passed through the Strait of Hormuz. Analysts believe trade could return to normal in the coming months if the US-Iran deal remains stable.

Middle Eastern producers are also preparing to restart full exports. Kuwait Petroleum Corp said that all force majeure notices issued during the war have now been lifted. Iraq’s Oil Minister Basim Mohammed also said the country’s oilfields are ready to resume production gradually and return to normal output levels.

However, concerns remain as Israel continues its military operations against Hezbollah in Lebanon, raising doubts about how stable the US-Iran peace agreement will be.

Meanwhile, rising US inflation, which hit a three-year high in May, is also being watched closely as it could put pressure on consumer markets and stocks.