Significant drop of up to 5% in oil prices following the agreement between the US andIran regarding the Strait of Hormuz, with Brent falling to a three-month low.
International oil prices came under strong pressure during Monday’s session, as the geopolitical de-escalation in oil at Monday’s session, as the geopolitical de-escalation in the Middle East and developments surrounding the Strait of Hormuz are rapidly reshaping market expectations for global energy supply. Investors reacted immediately to the prospect of normalized flows from one of the planet’s most critical energy corridors, leading to an extensive sell-off and a “wipeout” of the war risk premium that had been priced in during the previous period. The result was a sharp correction that brought Brent and U.S. WTI to multi-month lows, reinforcing the scenario that the market is entering a new phase of supply-demand balance amid reduced geopolitical tensions.
Crude oil prices recorded a sharp drop of nearly 5% on Monday to their lowest levels in the last three months, as markets reacted as expected positively to the announcement by the President of the United States, Donald Trump, that the U.S. and Iran had signed a memorandum of understanding aimed at ending the war and reopening the Strait of Hormuz.
The decline
Brent closed with losses of $4.16, or 4.76%, at $83.17 per barrel, while U.S. WTI fell by $4.13, or 4.87%, to $80.75 per barrel.
Both contracts shed a significant portion of the “war premium” that had been built into their prices in recent months, hitting their lowest levels since March 4.
According to a U.S. official, the memorandum has already been signed by Donald Trump, Vice President Jay D. Vance, and Iranian Parliament Speaker Mohammad Bagher Ghalibaf.
The official signing ceremony for the agreement is expected to take place on Friday in Geneva.
Ormuz back in the spotlight
The semi-official Iranian news agency Mehr reported that the draft agreement provides for the reopening of the Strait of Hormuz within 30 days under Iranian management.
“With a massive wave of oil supply likely just around the corner, the drop in prices seems entirely justified,” said Dennis Kislier of Bok Financial.
In yet another sign of de-escalation, Iran’s state-owned National Iranian Oil Company lowered the official selling price of its light crude for Asian buyers to $7.15 above the Oman/Dubai index for July, down from a $13 premium last month.
Meanwhile, Citi revised its forecasts for Brent downward, setting the average price at $75 in the third quarter and $70 in the fourth quarter of 2026, estimating that trade flows through the Strait of Hormuz will gradually resume.
The market expects the return of millions of barrels
The global market has been deprived of millions of barrels of oil and natural gas since the war led to the closure of the Strait of Hormuz for more than three months.
However, it remains uncertain how quickly these volumes will return to the market.
“Restoring the supply chain and restarting operations in the Arabian Gulf will be a difficult task. Many shipowners will be reluctant to send ships to the region until there are clear signals from insurance companies,” said Neil Crosby of Sparta Commodities.
Investors are also watching to see how quickly Middle Eastern producers will be able to restore their production and exports following the damage caused by the conflict.
According to the International Energy Agency, more than 14 million barrels of daily production remain off the market, a volume corresponding to approximately 14% of global demand.
Inventories remain low
Despite short-term pressure on prices, several analysts believe there are factors that could support oil prices in the medium term.
UBS analyst Giovanni Staunovo estimates that low inventories, the slow restart of production, and the need to replenish strategic reserves will continue to provide support for prices.
According to the U.S. Energy Information Administration, inventories in the world’s largest economies are heading toward their lowest levels since 2003.
Meanwhile, stocks in the U.S. Strategic Petroleum Reserve fell to 340.3 million barrels, the lowest level since 1983, following a new release of quantities as part of the emergency market supply plan.
On the diplomatic front, talks on Iran’s nuclear program are expected to mark the next critical stage of negotiations. Meanwhile, the E4 countries—the United Kingdom, France, Germany, and Italy—have stated that they are prepared to consider lifting sanctions against Iran provided there is progress on the nuclear issue.
