Oil prices fell on Thursday as traders moved quickly to strip out the war premium after the US and Iran signed an interim agreement aimed at reopening the Strait of Hormuz and restoring Iranian crude exports.
Brent crude slipped below $79 a barrel, while West Texas Intermediate dropped towards $76, extending the market’s retreat from the highs seen during the conflict.
The agreement offers a clear supply-side relief signal, but it does not remove every risk.
Investors are still weighing whether the deal can survive difficult negotiations on Iran’s nuclear programme, reconstruction funding and the pace at which shipping can return to normal.
Supply hopes push crude lower
The market reaction was immediate because the deal changes the near-term supply map.
The 14-point memorandum starts a 60-day negotiation window and provides for toll-free passage through the Strait of Hormuz, one of the world’s most important energy corridors.
The agreement also aims to restore full traffic through the waterway within 30 days.
Brent futures were down 89 cents, or 1.12%, at $78.66 a barrel at 0005 GMT, while US West Texas Intermediate fell 98 cents, or 1.28%, to $75.81.
The move reversed Wednesday’s bounce, which followed President Donald Trump’s warning that military action could resume if Tehran failed to comply.
“The sell-off extended as energy markets continued to aggressively price in a faster-than-expected return of Iranian barrels following the recent US-Iran memorandum of understanding,” IG market analyst Tony Sycamore said in a note.
Deal still leaves hard questions
The accord lowers the chance of an immediate supply shock, but implementation remains the key test.
The most contentious issues, including Iran’s nuclear programme, have been pushed into the next phase of talks.
The agreement also requires the US and its partners to develop a $300 billion recovery financing plan for Iran.
That leaves oil traders balancing two forces: the prospect of returning barrels and the risk that diplomacy stalls.
The Strait of Hormuz has carried a large share of global oil and gas flows, so even a partial reopening would be meaningful for refiners, freight markets and inflation expectations.
IEA warning shifts focus to 2027
The International Energy Agency warned on Wednesday that a successful reopening could turn this year’s shortage into a large surplus next year.
Its latest forecasts imply supply may exceed demand by 5.05 million barrels per day in 2027 as Middle East production returns to the market.
Monetary policy is also adding pressure. The Federal Reserve held rates at 3.50%-3.75%, but new projections showed nine of 18 policymakers now expect a rate increase this year.
Higher borrowing costs could slow activity and curb fuel demand, making the crude market more sensitive to any sign of oversupply.
For now, the direction is clear: oil is trading less on fear of disruption and more on the possibility that supply comes back faster than demand can absorb it.
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