Brent returned to its pre-war level, driven by geopolitical détente and the resumption of oil traffic in the Strait of Hormuz.
After several months of tension and soaring prices on the oil markets, the barrel of Brent oil, the world benchmark for crude, fell below $75 on Wednesday for the first time since the start of the war in the Middle East. This development marks a return to levels preceding the outbreak of the conflict, which occurred at the end of February, and reflects the gradual easing of the geopolitical situation in the region.
A marked decline after the agreement between Tehran and Washington
The price of a barrel of Brent from the North Sea, for delivery in August, lost 3.05% around 12:10 GMT (2:10 p.m. in Paris), to $74.73. This drop comes in the wake of the announcement last week of an agreement between Tehran and Washington to end the conflict and restore transit in this strategic maritime passage. American oil WTI fell below the $70 threshold on Wednesday.
The two crude benchmarks are thus approaching their pre-war level. According to ING analysts, “estimates indicate that around 6 to 7 million barrels per day of oil have passed through the strait in recent days.” This volume, however, remains far from the nearly 20 million barrels per day that passed through it before the start of the conflict. On Tuesday, the UN maritime agency announced the start of its plan to evacuate sailors and ships stranded in the Gulf region, saying it had obtained the “necessary security guarantees”. A full return to normal shipping operations, however, will likely take several months.
Several factors weigh on prices
Since the start of the conflict, Saudi Arabia and the United Arab Emirates have considerably increased their exports of black gold via pipelines and ports to bypass the Strait of Hormuz. Furthermore, “the market is optimistic about the future, with Iran likely to increase its oil sales globally following the lifting of US sanctions” on Iranian hydrocarbon exports for a period of 60 days, Mind Energy analysts point out. Added to this are flows from strategic reserves and Chinese demand which remains weaker than before the war.
In Russia, on the other hand, concerns about the supply of refined products are increasing, against a backdrop of persistent Ukrainian attacks on energy infrastructure. Moscow has already imposed restrictions on the export of gasoline and kerosene, and the government “is now considering banning diesel exports”, which “has increased the price gap between diesel and Brent”, ING analysts point out.
If geopolitical relaxation and the gradual resumption of traffic in the Strait of Hormuz have allowed Brent to return to its pre-war level, the market remains attentive to the capacity of players to completely restore oil flows. Analysts estimate that it will take several more months for a complete return to normal, while global demand and tensions on certain refined products continue to weigh on the market balance.
