Brent falls below $80/bbl on expectations of supply improvement

The front-month ICE Brent contract has declined by $2.01/bbl on the day, to trade at $79.21/bbl at 09.00 GMT.

IMAGE: Getty Images

Upward pressure:

Market participants continue to assess the implications of the recent US-Iran peace deal, with uncertainty surrounding its implementation shaping sentiment in the global oil market.

Concerns over the full restoration of shipping through the Strait of Hormuz have lent some support to Brent crude futures.

“Nevertheless, many questions remain as to how the interim US-Iran deal will be implemented. Concerns over the safety of vessels remains high, while there is some doubt as to whether the chokepoint for a fifth of the world’s supply will remain toll-free,” ANZ Bank’s senior market strategist Daniel Hynes commented.

Meanwhile, US crude oil inventories recorded a significant draw of 8.33 million barrels in the week ending 12 June, according to American Petroleum Institute (API) estimates cited by Trading Economics.

The decline was substantially larger than market expectations of a 4.5 million-barrel draw.

A sharp reduction in US crude stockpiles is generally interpreted as a sign of stronger oil demand and can provide upward support to Brent's price.

“Inventories in the SPR [Strategic Petroleum Reserve] also continued to decline, dropping by 8.9 million barrels to 340.3 million, leaving stocks 385 million barrels below maximum capacity,” Trading Economics noted.

Downward pressure:

The US-Iran peace agreement continues to exert downward pressure on Brent crude futures, as the extension of the ceasefire by additional 60 days reinforced expectations that shipping through the Strait of Hormuz will gradually return to normal, improving prospects for global oil supply.

“Crude oil prices extended their decline, on expectations of a rebound in supply from the Middle East,” Hynes noted.

Under the agreement, the US is expected to lift its blockade of Iranian ports, while Iran will allow oil tanker traffic to resume through the Strait of Hormuz, which has been effectively closed since US and Israeli strikes on 28 February.

“Iran, US commit to returning Hormuz traffic to normal within 30 days,” VANDA Insights founder Vandana Hari said.

By Tuhin Roy

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