TLDR
- WTI crude declined 2.5% to $74.88/barrel; Brent fell 2.2% to $77.82/barrel on Thursday
- President Trump and Iran’s leader signed historic agreement ending conflict and reopening crucial Strait of Hormuz
- Crude benchmarks have plummeted approximately 15% over six consecutive trading sessions
- IEA projects massive global oil glut exceeding 5 million barrels daily by 2027
- Federal Reserve maintained current rates while hinting at potential increase this year, weighing on demand outlook
Energy markets experienced another brutal session Thursday following the landmark agreement between Washington and Tehran to conclude hostilities and restore access to the Strait of Hormuz.
U.S. West Texas Intermediate crude tumbled 2.5% to settle at $74.88 per barrel. Brent crude, the international benchmark, slid 2.2% to $77.82 per barrel.
The session marked fresh lows not seen since early March. The weekly decline has reached approximately 15% across both major benchmarks.
The historic memorandum of understanding was executed by President Trump alongside Iranian President Masoud Pezeshkian. The framework establishes a permanent cessation of conflict and outlines progressive relaxation of American sanctions targeting Iranian petroleum exports.
The Strait of Hormuz—a critical chokepoint facilitating approximately 20% of global oil and liquefied natural gas transport—has remained largely impassable throughout the three-month military engagement. The blockade had inflated oil prices and intensified inflationary pressures worldwide.
Vessel traffic has begun resuming through the strategic waterway. Major exporters including Iraq are positioning to expand shipment volumes.
What the Iran Deal Means for Oil Supply
Traders had incorporated substantial geopolitical risk premiums into valuations during the standoff. The agreement’s signing has now stripped away much of that premium.
Energy analysts at ING highlighted that Tehran anticipates rapid removal of American petroleum sanctions. However, they cautioned that the actual timeline for restoring normal supply flows contains significant uncertainty stemming from operational challenges, logistics complexities, and lingering sanctions infrastructure.
Worldwide petroleum inventories continue running lean. American crude reserves declined 8.3 million barrels in the previous week, providing some buffer against steeper price deterioration.
The International Energy Agency anticipates global oil production expansion of approximately 8 million barrels daily between 2026 and 2027. This substantially exceeds projected consumption growth of roughly 2 million barrels per day.
The IEA’s forecast indicates a surplus surpassing 5 million barrels daily within three years. ING analysts characterized the agency’s assessment as distinctly “bearish.”
MUFG analysts noted that industry participants maintain cautious expectations regarding normalization speed, despite emerging positive indicators.
Fed Decision Adds Another Layer
The Federal Reserve maintained its benchmark interest rate Wednesday, meeting market expectations. Nevertheless, central bank officials indicated a possible rate elevation later in 2025.
Elevated financing costs typically constrain economic expansion and diminish petroleum consumption. This outlook contributed additional downward momentum to crude valuations Thursday.
Prior to the military conflict, the Strait of Hormuz disruption had supported elevated pricing. The pathway’s anticipated reopening is now reversing those dynamics.
The scenario continues evolving. The velocity at which Iranian production reenters international commerce will hinge on sanctions removal speed and infrastructure rehabilitation progress.
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