Oil Falls, Ceasefire Extension Hopes Pressure Risk Premium
Oil prices weakened after reports emerged that the US and Iran had tentatively agreed to extend the ceasefire by 60 days. If realized, this agreement could potentially reopen shipping through the Strait of Hormuz, which during the crisis has been a major source of global supply shocks.
Brent fell to near US$93/barrel and has fallen around 18% so far this month, heading for its biggest monthly decline since 2020. WTI hovered around US$88/barrel. The market believes this shift in sentiment is fueling optimism that some form of agreement can be reached, although the process is far from final.
Political certainty remains fragile. US President Donald Trump has reportedly not yet agreed to the terms of the deal. Several officials have also tempered expectations: Vice President JD Vance said it was too early to say "when or if" a deal with Iran would be reached, while Treasury Secretary Scott Bessent only said the negotiating teams were still in discussions.
Fundamentally, the market is trying to balance two things: hopes for de-escalation versus the reality of obstacles to supply recovery. The effective closure of Hormuz has shut off millions of barrels of oil daily and triggered a global “energy shock.” However, even if the ceasefire is extended, the restoration of oil flows will not be immediate due to security, technical, and logistical factors.
Several obstacles remain, including the need to clear shipping lanes, shut-in wells that could take months to return to production, and repairs to energy infrastructure damaged by drone and missile attacks. Furthermore, tanker journeys to importing countries can take weeks, creating a lag between the “peace headlines” and actual physical supply recovery.
Meanwhile, US data shows the domestic market remains tight throughout the crisis. Distillate stocks fell to their lowest level in more than two decades, and crude inventories at the Cushing, Oklahoma, hub fell for five consecutive weeks to around 23 million barrels, approaching the 20 million barrel range often considered the minimum operational limit.
5 key points:
- Oil weakened after reports of a 60-day extension of the US-Iran ceasefire, which could reopen shipping through the Strait of Hormuz.
- Brent is down around US$93 and down 18% this month; WTI is around US$88.
- Certainty remains low: Trump has not yet agreed to a deal, and US officials consider it too early to confirm the outcome.
- Supply normalization could be slow due to security constraints, production restarts, infrastructure repairs, and tanker delivery delays.
- US data shows tight conditions: distillate stocks are at a more than 20-year low, and Cushing is down to 23 million barrels and remains near minimum operating levels. (asd)*
Source: Newsmaker.id
