Oil prices experienced a rebound on Tuesday, driven by concerns regarding the insufficient details in a preliminary agreement aimed at concluding the conflict between the U.S. and Iran. Additionally, there is a growing awareness that the resumption of supply through the crucial Strait of Hormuz may require more time than previously anticipated. Brent crude futures increased by 26 cents, or 0.3%, reaching $83.42 a barrel, while U.S. West Texas Intermediate climbed to $81.12 a barrel, up 46 cents, or 0.3%, as of 0108.
On Monday, oil prices experienced a decline of nearly 5%, reaching their lowest closing level since March 4. This drop followed U.S. President Donald Trump’s announcement regarding a memorandum of understanding aimed at concluding the U.S.-Israeli conflict with Iran. The conflict had previously led to the closure of the Strait of Hormuz, a critical passage that normally facilitates the transport of one-fifth of the global oil supply, resulting in approximately 14 million barrels per day of output being curtailed. Despite the optimism following the announcement, the full details of the memorandum remain undisclosed, and a permanent truce has yet to be established. Initial signs suggest that the agreement would facilitate the reopening of the blockaded Strait of Hormuz and prolong a ceasefire for 60 days, providing negotiators the opportunity to address challenging topics such as the future of Iran’s nuclear program.
On Monday, Iranian President Masoud Pezeshkian stated that the U.S.-Iran memorandum of understanding was a “important step” toward halting the conflict, but emphasised that a final agreement for a lasting truce “has yet to take shape. The devil may be in the details, and until those details emerge, the market is likely to show restraint regarding the further unwinding of the risk premium in energy markets,” said Tim Waterer. A senior Iranian official stated on Monday that pending a final agreement, Iran would halt its nuclear activity, abstaining from further uranium enrichment or the expansion of nuclear facilities.
Even with the current agreement, it remains uncertain how swiftly the reduced supply will be able to re-enter the market. “The path back to normal supply flows remains far from straightforward,” stated Tony Sycamore. “Clearing mines, restoring full marine insurance coverage, and getting vessels and operators comfortable enough to return to the Gulf will all take time, as will bringing shuttered wells and damaged regional infrastructure back online,” Sycamore added.