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The price of oil fell below $80 a barrel on Tuesday for the first time since the early stages of the war in the Middle East, a sign of traders’ growing confidence that the deal struck between the US and Iran will restore the flow of crude through the Strait of Hormuz.
Brent crude, the international benchmark, fell more than 4 per cent to $79.61 a barrel, its lowest level since March 3. US WTI was down 4 per cent at $77.55.
Oil prices have tumbled this week after Washington and Tehran agreed late on Sunday to extend their ceasefire and reopen the strait, which has been in effect shut since late February, after several weeks of fraught negotiations brokered by Qatar and Pakistan.
“Optimism surrounding a gradual recovery in Gulf exports has reduced the geopolitical risk premium built up during the conflict,” said Soojin Kim, an analyst at MUFG. “The prospect of improved energy flows and lower oil prices has helped ease inflation concerns, although uncertainty remains over how quickly shipping and commodity exports can normalise.”
The price of crude surged after the US and Israel launched their assault on Iran on February 28, sending the price from $72 a barrel on the eve of the conflict to as high as $126 in April. Hopes of a peace deal have repeatedly been dashed in recent weeks, causing dramatic fluctuations in the price of oil.
The falling oil price came despite a warning earlier in the day from Jotaro Tamura, chief executive of shipping giant Mitsui OSK Lines, that it would take weeks for many shipowners to restart passages of the strait as they wait to see if the deal is “material”. Oil traders have consistently warned that it could take as many as three months for ship traffic through the crucial chokepoint to return to prewar levels.
“Markets clearly welcome the latest development, although how quickly traffic through the strait can normalise remains to be seen,” said analysts at UBS. “Given worries about sea mines in the waterway, markets will look for clearer evidence that shipping companies and insurers have sufficient confidence to traverse the strait.”
Goldman Sachs on Monday trimmed its oil price forecast following the US-Iran deal, the signing of which is scheduled for Friday. The bank now expects Brent to trade at $80 a barrel in the final quarter of 2026, $10 lower than its previous prediction.
“While full details on the agreement are unclear, we now assume that Persian Gulf exports normalise to prewar levels by the end of July (vs end of August previously),” analysts at Goldman said.
