Ceasefire Expectations Drive Sell-Off, Brent Hits Lowest Since April
Oil prices fell about 2% on Friday (May 29th) and headed for their deepest weekly decline since early April after reports that the US and Iran had reached a preliminary agreement to extend a ceasefire and ease shipping restrictions in the Strait of Hormuz. The July Brent contract—which expires Friday—fell US$1.89 (-2%) to US$91.82 per barrel at 13:09 GMT, while the August Brent contract fell US$1.89 (-2%) to US$90.81. WTI fell US$1.70 (-1.9%) to US$87.20.
On a weekly basis, Brent fell about 11%, its biggest drop in seven weeks, while WTI fell nearly 10%, its biggest drop in six weeks. Both hit their lowest levels since mid-April, reflecting a reduction in risk premiums after the market priced in the possibility of a de-escalation.
However, the agreement is said to be far from final. Reuters sources said the deal is still awaiting President Donald Trump's approval, while Iranian state media reported it has not yet been finalized. This uncertainty has kept trading volatile; both benchmarks have swung around US$6 in recent sessions due to conflicting signals regarding the end of the Iran war and the potential opening of Hormuz.
In the physical market, shipping flows through the chokepoint remain well below pre-conflict levels. ING believes the opening of Hormuz could provide immediate relief, but recovery remains uncertain. Japan, which relies heavily on Middle Eastern oil, recorded a 66% drop in crude imports last month compared to April of the previous year, highlighting the impact of supply disruptions.
Commerzbank raised its Brent forecast to US$90 per barrel by the end of September and US$85 by the end of the year, with Hormuz remaining unrecoverable for about two months. In the US, the EIA reported that crude, gasoline, and distillate inventories fell last week as refinery and consumer demand improved, while exports fell by 1.16 million bpd to 4.4 million bpd, providing a cushion for prices despite the bearish weekly sentiment. (Arl)*
Source: Newsmaker.id
