Summary
- International oil prices fell about 16%% over four trading sessions on a WTI basis, reaching their lowest level in three months on hopes for a US-Iran agreement to reopen the Strait of Hormuz.
- Markets see the resumption of Iranian oil exports, the normalization of Middle East crude supply, and the unwinding of the war premium as easing concerns over a supply shortfall in the global energy market.
- Even so, with US crude inventories falling and stockpiles at the Cushing hub also declining, the futures market is already pricing in the possibility of resumed crude supply, while maritime traffic may take at least a month to fully normalize.
Forecast Trend Report by Period
International oil prices fell to their lowest level in three months as hopes grew for a US-Iran agreement to reopen the Strait of Hormuz.
Bloomberg reported on June 16 that West Texas Intermediate traded below $77 a barrel, extending losses to a fourth straight session. WTI has tumbled about 16% over the past four trading days, its longest losing streak this year. Brent crude also finished trading below $79 a barrel.
The drop came as the US and Iran were expected to sign a provisional agreement on June 19. The deal is reported to include reopening the Strait of Hormuz and allowing Iran to resume crude exports.
Markets are betting that a normalization of Middle East oil supply would ease concerns over shortages in the global energy market. As a result, the war premium built up over recent weeks is unwinding quickly.
Still, a full supply recovery may take time.
"Most traders expect the US Navy to escort tankers during the first few weeks while also carrying out mine-clearing operations," Dennis Kissler, senior vice president at BOK Financial Securities, said. "Maritime traffic is unlikely to fully return to normal for at least a month."
He added that futures markets typically price in developments before they happen. The market is increasingly assigning higher odds to a resumption of crude supply.
Meanwhile, crude inventories continue to decline despite expectations for increased supply. The American Petroleum Institute estimated that US crude stockpiles fell by about 8.3 million barrels last week. Inventories at the Cushing, Oklahoma, hub also dropped sharply.
Official weekly US crude inventory data from the Energy Information Administration is due later on June 16.
