Oil prices have declined sharply following a recent Memorandum of Understanding between the United States and Iran, which has alleviated concerns over a prolonged disruption in the strategic Strait of Hormuz. The agreement signals a phased reopening of the vital shipping route, easing fears of sustained supply shortages and prompting a reassessment of medium-term oil market forecasts.
As of 1327 GMT, Brent crude futures fell $3.32, or 4.3%, to $73.76 per barrel, while US West Texas Intermediate (WTI) dropped $3.02, or 4.13%, to $70.19. Brent touched its lowest level since late February, just before US and Israeli strikes targeted Iranian assets, and WTI reached its lowest since early March.
The deal follows heightened supply pressures earlier in the year, with US inventories notably depleted. On June 15, President Donald Trump warned that domestic reserves could be exhausted within approximately four weeks. This increase in urgency accelerated diplomatic efforts to reduce tensions and restore market stability.
Wood Mackenzie, an energy consultancy, has revised its forecast for Brent crude, now expecting an average price of $78 per barrel in 2027, with potential declines to around $70 by the fourth quarter due to improved supply conditions. The company estimates that some 70% of volumes shut in during the crisis could return within three months of reopening, rising to 90% within six months, with full recovery taking longer.
Shipping data supports a gradual resumption of normal flows through the Strait of Hormuz. Vessel traffic peaked at 35 ships on June 18, up from fewer than 15 during peak disruption but still below levels seen prior to the conflict. Full normalization of transit volumes is anticipated by August.
Analysts at Julius Baer note the unusually swift market correction, with exports rebounding to more than 80% of their pre-crisis levels. This recovery, combined with declining investor bullishness—reflected in an 80% fall in speculative long positions from five-year highs—suggests that the market may have shifted from a supply deficit into surplus.
Norbert Rücker, Julius Baer’s Head of Economics and Next Generation Research, emphasized that the rapid restoration of supply chains—from wells through to export routes—has been supported by manageable infrastructure damage and the availability of empty tankers. He cautioned, however, that storage refilling is a gradual process that will provide some price support in the near term, even as the broader market may face a surplus next year. Consequently, Julius Baer maintains a cautious stance and has trimmed its three-month price forecast to $70 per barrel.
Despite the easing of crude supply constraints, downstream markets remain under pressure. Refining margins have improved but have not fully normalized, with jet fuel crack spreads still nearly twice their pre-conflict levels. Alan Gelder, Senior Vice President for Macro Oils at Wood Mackenzie, remarked that had the Strait remained closed for an extended period, Brent crude prices could have surged above $150 per barrel. While the MoU has mitigated this risk, he underscored that the full recovery of production and export infrastructure across the Middle East and Gulf Cooperation Council ports will take much of the coming year, and that restoring crude flows is only one part of the broader challenge facing the oil market.