DTN Oil Update
Oil Slips to 3-Month Low on US-Iran Peace Deal Announcement
VIENNA (DTN) -- Oil futures slumped to their lowest since early March Monday morning after the U.S. and Iran announced they had agreed to an interim deal to end the war and reopen the Strait of Hormuz.
By 7:30 a.m. ET, ICE Brent for August delivery was down $4.46 to trade near $82.87 bbl, and NYMEX WTI for July delivery fell $4.70 to $80.18 bbl.
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Downstream, NYMEX ULSD futures for July delivery retreated $0.1064 to $3.2980 gallon, and front-month NYMEX RBOB futures plummeted $0.1180 to $2.9318 gallon.
The U.S. Dollar Index softened by 0.22 points to 99.525 against a basket of foreign currencies.
U.S. President Donald Trump on Sunday said that a deal with Iran was "now complete" and announced a reopening of the Strait of Hormuz as well as the immediate lifting of the U.S. blockade on Iranian maritime trade. The President clarified in a second statement that flows through the Strait of Hormuz will resume once both parties sign the deal on Friday in Switzerland.
The memorandum of understanding mediated by Islamabad extends the ceasefire for another 60 days to allow for negotiations about yet unresolved issues like Iran's nuclear program and the lifting of sanctions.
Hundreds of laden tankers continued to idle in the Persian Gulf as shippers were seeking clarity on a timeline for safe passage through the Strait of Hormuz, the blockade of which has cut the world off almost a fifth of petroleum liquid supply for now three and a half months. The largest oil supply disruption in history caused oil prices to rally and global inventories to dwindle from five-year highs to the lowest in a decade.
Iranian news outlets, meanwhile, reported that the deal granted Iran 30 days to reopen the strait. The timing of the restart of flows is crucial given rapidly shrinking oil and fuel stockpiles. The International Energy Agency has repeatedly warned that inventories could hit a "red zone" by the July-August period should traffic not be restored, jeopardizing fuel supply safety and raising shortage risks.
While markets can expect some immediate respite once the shipping disruption ends, oil supply will take months to approach pre-war levels. In addition to hurdles such as damaged energy infrastructure and a shortage of empty tankers, production at many oil fields forced shut by the lack of takeaway capacity will be slow to ramp up.