Oil Plunges, Hormuz May Be Reopened
Oil prices fell sharply after the United States and Iran agreed to a peace deal that could potentially reopen the Strait of Hormuz. Brent fell 4.0% to US$83.88/barrel at 7:43 a.m. Singapore time, while WTI weakened 4.5% to US$81.05/barrel. This decline indicates the market is beginning to shed the geopolitical risk premium that has been supporting energy prices for the past few months.
US President Donald Trump said the opening of the Strait of Hormuz would be "toll-free" after the agreement was signed on Friday. He also stated that the blockade on Iran would end. Iranian Deputy Foreign Minister Kazem Gharibabadi confirmed that the agreement had been reached, although the text would not be made public until after the signing ceremony in Switzerland.
The Strait of Hormuz is key because under normal conditions, this waterway carries about a fifth of global oil flows. Since the conflict broke out in late February, disruptions to the waterway have restricted oil and gas shipments from the Persian Gulf, pushing up energy prices and increasing global inflationary pressures. Therefore, the prospect of opening Hormuz immediately put pressure on oil prices.
However, the supply recovery will not be immediate. Several technical hurdles remain, including mine clearance, ship security, and clarity regarding the extent to which Iran will control shipping traffic in the waterway. This means that even though the underlying risks have eased, the market still needs to see concrete implementation on the ground.
Fundamentally, the decline in oil could ease energy inflation pressures and reduce the incentive for central banks to raise interest rates. However, if the opening of Hormuz is delayed or the agreement faces political obstacles, the risk premium could return to prices. For now, the direction of oil will depend on the official signing, ship flows in Hormuz, and the response of Gulf producers to the normalization of supply. (asd)*
Source: Newsmaker.id
