Brent crude has fallen to its lowest level since the US-Israel war on Iran began, slipping below $71 a barrel as hopes rise for a permanent peace deal. Recovering oil flows through the Strait of Hormuz and cautious optimism over talks have pulled the risk premium out of the market.
Brent crude fell more than 1% on Thursday to below $71 a barrel, returning the international benchmark to pre-war prices amid rising hopes for a breakthrough in negotiations aimed at sealing a permanent peace deal. Brent futures for August delivery stood at $70.82 per barrel as of 04:30 GMT, lower than at any point since February 27, the day before the war began.
What pulled prices lower
The slide followed word from Qatar, a key mediator between Washington and Tehran, that US and Iranian officials had made positive progress in indirect talks on their memorandum of understanding. US President Donald Trump also cast the talks in a positive light on Wednesday, easing the risk premium that had built into oil during the conflict.
Vandana Hari, founder of Singapore-based Vanda Insights, said a steady uptick in oil flows out of the Gulf and cautiously optimistic geopolitical sentiment had driven prices down. She expects crude to keep grinding lower until the backlog of stranded barrels clears, and prices could even swing into oversold territory.
Hormuz traffic recovers slowly
Shipping through the Strait of Hormuz, a conduit for one-fifth of global oil and liquefied natural gas trade in peacetime, has shown tentative signs of recovery. At least 40 vessels transited the strait on Tuesday, up from 27 crossings on Monday and 22 on Sunday, though traffic remains far below the pre-war level of roughly 130 daily crossings.
The recovery has fed into analyst forecasts. UBS cut its Brent price forecast by $25 for the September quarter to about $80 a barrel on average, citing the rise in flows through Hormuz after the US-Iran agreement.
Not out of the woods
Brent is now down more than 38% from its post-war peak of more than $126 a barrel on April 30. Even so, Neil Crosby, an oil market analyst at Sparta Commodities, warned that it is too early to conclude prices will stay at pre-war levels, describing the situation as neither stable nor sustainable given the state of supply, demand and trade.
Sources: Al Jazeera, Reuters
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