Oil prices declined for a fifth consecutive session on Wednesday as investors assessed the possibility of higher global supply following the US-Iran peace agreement.
A significant drop in US crude inventories provided some support and helped limit the market’s losses.
Brent crude futures for August delivery fell 0.9% to $78.23 per barrel. West Texas Intermediate crude dropped 1.2% to $75.16 per barrel.
Both oil benchmarks reached their lowest levels since March 2. Brent and WTI have fallen by approximately 10% over the past two sessions.
US-Iran Deal Pressures Oil Prices
Traders remained focused on the potentially bearish impact of the agreement between Washington and Tehran.
The deal could lead to the gradual reopening of the Strait of Hormuz and allow additional Middle Eastern crude supplies to return to the global market.
Under the proposed agreement, the United States will end its blockade of Iranian ports. Iran will also restore maritime traffic through the Strait of Hormuz.
Iran Could Resume Oil Exports Immediately
The agreement is expected to be formally signed on Friday.
It reportedly includes a commitment preventing Iran from developing a nuclear weapon. In exchange, Tehran will be allowed to resume oil sales immediately after signing the deal.
The potential return of Iranian exports has significantly changed sentiment across the energy market.
Geopolitical Risk Premium Fades
Oil prices previously included a large geopolitical risk premium due to concerns about supply disruptions and restricted shipping routes.
Expectations that the Strait of Hormuz could reopen have caused traders to remove much of that premium.
The prospect of additional Iranian crude entering the market has also raised concerns about oversupply, contributing to the recent decline in oil prices.
Implementation Uncertainty Limits Losses
Despite the improved supply outlook, uncertainty surrounding the implementation of the agreement prevented oil prices from falling further.
Shipping companies are reportedly waiting for more information about security arrangements and operating conditions in the region.
Analysts have warned that a complete normalization of maritime traffic and oil flows may take longer than the market currently expects.
US Crude Inventories Record Sharp Decline
Strong US inventory data also helped reduce the pressure on oil prices.
The American Petroleum Institute reported that US crude stockpiles fell by 8.33 million barrels during the week ending June 12.
The decline was significantly larger than market expectations for a reduction of approximately 4.5 million barrels.
Gasoline Inventories Increase
While crude supplies declined sharply, US gasoline inventories rose by 2.48 million barrels.
Distillate inventories, which include diesel and heating oil, fell by approximately 10,000 barrels.
The substantial crude draw suggested that demand remains resilient and that short-term supplies in the United States may be tighter than expected.
Official US Inventory Data Awaited
Investors are now waiting for official inventory figures from the US government later on Wednesday.
Confirmation of the large crude stockpile decline could provide further support for the market.
However, the outlook for oil prices will continue to depend heavily on the implementation of the US-Iran agreement, the reopening of the Strait of Hormuz and the speed at which Iranian exports return.
