Oil prices extend losses on Tuesday

Oil prices extended losses on Tuesday as markets assessed the potential resumption of crude flows through the Strait of Hormuz following a preliminary agreement to end the US-Israeli war with Iran, while weak physical market fundamentals continued to weigh on prices.

Brent crude futures fell 0.5 per cent to $82.72 a barrel by 0631 GMT, while US West Texas Intermediate crude declined 0.3 per cent to $80.51 a barrel, extending Monday’s nearly 5 per cent drop that pushed prices to their lowest close since March.

Market sentiment improved after US President Donald Trump said a memorandum of understanding had been signed to end the conflict, raising expectations that the Strait of Hormuz, which carried around one fifth of global oil supplies before hostilities disrupted traffic, could gradually reopen.

Analysts at Morgan Stanley said tanker movements through the waterway could take several weeks to recover, forecasting that around 50 per cent of disrupted production could return by September and 80 per cent by December. The bank also pointed to weak market fundamentals, including strong US exports and declining Chinese demand.

China’s crude oil imports fell 29 per cent in May to their lowest level in eight years, while imports of Saudi crude are also expected to decline in July.

Although early indications suggest the agreement could reopen the Strait of Hormuz and extend a 60 day ceasefire, uncertainty remains over a permanent settlement and the future of Iran’s nuclear programme. Iranian President Masoud Pezeshkian described the agreement as an important step toward ending the conflict but said a lasting truce had yet to take shape.

DBS Bank said the reopening of the Strait of Hormuz and the easing of restrictions on Iranian oil exports would be the most important factors for oil markets, warning that any delays or complications could trigger renewed price volatility.

Attribution: Reuters