Global oil markets are reacting to Washington’s announcement and progress in negotiations with Iran, causing a marked drop in prices.
The oil market experienced a sharp correction on Monday, under the effect of the favorable development of talks between the United States and Iran, in particular the announcement of the suspension of American sanctions on Iranian oil. The price of a barrel of Brent from the North Sea, for delivery in August, fell 3.31% to $77.90. Its American equivalent, a barrel of West Texas Intermediate, for delivery in July, which was the last day of trading, lost 2.32% to $74.82.
Progress in negotiations between Washington and Tehran
After the signing of a memorandum of understanding last week and a start in chaos, the negotiations between Washington and Tehran, launched on Sunday, must result, within a renewable 60 days, in a final document. The two parties have made “encouraging progress”, the Pakistani and Qatari governments, mediator countries, wrote in a joint statement on Monday. They have already agreed on mechanisms aimed at stopping the clashes in Lebanon and securing the strategic Strait of Hormuz, a maritime passage essential to the hydrocarbon trade.
In parallel with this progress, the United States announced on Monday that it would suspend its sanctions targeting Iranian oil for two months, ensuring that Iran would once again welcome nuclear inspectors. “All transactions” which were previously “prohibited” concerning the production, sale, transport of hydrocarbons of Iranian origin “are authorized until August 21,” according to the website of the American Department of Finance, which manages economic sanctions.
“Although it has not yet returned to its pre-war level, traffic in the Strait of Hormuz has been quite sustained in recent days,” John Kilduff of Again Capital told AFP. Monday at 3:30 p.m. GMT, the Kpler maritime monitoring platform already recorded 26 crossings of raw materials transport vessels. Traffic also reached a record on Saturday since the start of the war: 38 crossings of commercial ships according to AXSMarine navigation data, including 32 crossings of raw materials ships according to Kpler.
Supply up, demand still low
“All this translates into an increase in supply in a context where demand remains weak due to high prices,” summarizes John Kilduff. Demand could, however, be stimulated by the reconstitution of strategic reserves around the world, called upon in recent months to mitigate the impact of the surge in oil prices.
