Oil Drops as US-Iran Peace Deal Boosts Supply

Crude oil dropped below $75 per barrel on Thursday, the lowest level since early March, as markets reacted to the US and Iran reaching an agreement to end a prolonged conflict that caused the largest supply disruption on record. Early signs of progress emerged as several vessels began crossing the Strait of Hormuz again after weeks of disruption. President Donald Trump said an interim agreement had been signed, with plans to quickly reopen the key Persian Gulf shipping route. A return to normal flows through Hormuz could allow major producers including Saudi Arabia, the UAE and Iraq to restart millions of barrels of halted output. Oil has already fallen around 38% since reaching a four-month high in April. Shipping activity has shown signs of recovery, with Saudi oil tankers and vessels carrying LNG and fuel leaving the Gulf region. However, inventory levels remain tight, with crude stocks at Cushing, the largest US storage hub, falling to around 20 million barrels.

Crude oil fell to around $75 per barrel on Thursday, extending its decline toward the lowest levels since early March following reports that the US and Iran digitally signed their interim peace agreement. A US official confirmed that the memorandum of understanding has taken effect, although it remains uncertain whether Iran has already started measures to fully reopen the Strait of Hormuz. According to reports, the deal includes the swift reopening of the key shipping route and the removal of sanctions on Iranian oil exports, while negotiations on nuclear matters and possible additional economic incentives for Iran are expected to continue. Market participants are also watching shipping firms that had largely suspended transit through the strait amid blockades imposed by both the US and Iran. Meanwhile, the IEA warned of a potential supply glut, projecting global oil supply to increase by 8 million barrels per day by 2027, compared with demand growth of just 2 million bpd.

Crude oil rose more than 1.5% to above $77 per barrel on Wednesday after US President Donald Trump warned that bombing of Iran could resume if Tehran failed to “behave,” raising fresh uncertainty over a potential ceasefire deal. Trump said the memorandum of understanding with Iran was not final, adding that military action remained possible. The US-Iran memorandum, which extends a fragile ceasefire by 60 days, could allow talks toward a lasting truce and help rebuild depleted inventories. Still, industry officials said a full recovery in Iranian production and refining capacity could take weeks, months or even years, limiting the speed of any supply rebound. Nevertheless, oil prices remained near three-month lows, however, as the International Energy Agency warned of a looming supply surplus. In its first outlook for 2027, the IEA said global oil supply could rise by 8 million barrels a day while demand grows by only 2 million bpd, creating significant oversupply.