Oil falls to lowest level since the Iran war began after ceasefire agreement is signed

Oil prices fell more than 1% on Thursday, hitting their lowest levels since the first trading session after the Iran war began, as the temporary agreement between the United States and Iran to end the conflict, reopen the Strait of Hormuz, and ease sanctions on Tehran strengthened expectations of higher global crude supplies.

Brent crude futures fell $1.02, or 1.28%, to $78.53 per barrel by 10:36 GMT, while US West Texas Intermediate crude dropped $1.48, or 1.93%, to $75.31 per barrel.

Brent touched its lowest level since March 2, the first trading day after the initial US and Israeli strikes on Iran, while WTI fell to its lowest level since March 4.

“The selloff continued as energy markets kept pricing in a faster-than-expected return of Iranian oil to global markets following the latest memorandum of understanding between the United States and Iran,” said Tony Sycamore, market analyst at IG.

A 60-day negotiation period

The 14-point memorandum of understanding provides for a 60-day negotiation period, during which Iran will allow vessels to pass through the Strait of Hormuz without transit fees. The strait is one of the world’s most important routes for oil and gas shipments.

The agreement also calls for shipping activity through the strait to be restored to full capacity within 30 days.

The preliminary deal delays several of the most complex issues, most notably Iran’s nuclear program. It also requires the United States and its partners to establish a $300 billion funding plan to support the reconstruction and recovery of Iran’s economy.

Expectations of a gradual export recovery

Analysts expect oil flows through the Strait of Hormuz to recover gradually, while industry experts warned that prices may not collapse sharply as global demand improves and countries rebuild oil inventories depleted during the war.

Goldman Sachs expects Gulf exports to return to pre-war levels by the end of July, with oil production fully recovering by October.

The bank estimates that restoring exports to pre-war levels would require oil flows through the Strait of Hormuz to increase by around 13 million barrels per day from current levels, bringing traffic back to about 70% of pre-war volumes.

$75 seen as a strong price floor

BNP Paribas does not expect prices to return to pre-war levels for now, viewing the $75 per barrel level as a “strong and sustainable price floor for the foreseeable future,” due to continued supply losses and stronger global demand.

Brent crude had traded between $60 and $70 per barrel during the first two months of the year before the Iran war began.

Slower Chinese demand

In China, the world’s second-largest oil consumer, a report from PetroChina’s research unit showed that the country’s oil consumption in 2026 is expected to reach 753 million metric tons, down 4.9% from 2025.

The decline is attributed to the accelerated shift toward new energy sources and higher oil prices.

Additional geopolitical developments

Meanwhile, Ukrainian drones targeted an oil refinery in the Russian capital Moscow for the second time this week, in what Kyiv said reflected its growing military ability to carry out long-range strikes inside Russian territory.