Oil prices moved higher on Wednesday, stabilizing after several sessions of losses pushed crude benchmarks to their lowest levels in three months.
Investors continued to assess whether a preliminary US-Iran peace agreement could restore Gulf oil supplies and increase the amount of crude available to global markets.
Brent and WTI Oil Prices Recover
By 9:21 a.m. ET, Brent crude futures had gained 1.2% to trade near $79.90 per barrel.
US West Texas Intermediate futures rose 0.7% to approximately $76.60 per barrel.
Despite Wednesday’s recovery, both benchmarks had fallen by around 10% during the previous two trading sessions. Brent also dropped below $80 per barrel for the first time since early March.
US-Iran Agreement Could Increase Oil Supply
Traders remained focused on the potential consequences of the proposed Middle East peace agreement.
The deal could support the gradual reopening of the Strait of Hormuz and allow additional crude oil supplies to return to international markets.
According to media reports, Washington would end its blockade of Iranian ports. Tehran would then restore maritime traffic through the Strait of Hormuz.
The agreement is expected to be signed on Friday. Iran could reportedly resume oil sales immediately after the signing.
IEA Predicts Oil Market Surplus
The International Energy Agency expects the global oil market to move into a significant surplus next year.
Its forecast assumes that oil shipments will gradually recover following the reopening of the Strait of Hormuz.
The return of Iranian exports and other Gulf supplies could place additional downward pressure on crude oil prices.
Shipping Companies Remain Cautious
Uncertainty continues to surround the implementation of the US-Iran agreement.
Shipping companies are reportedly taking a cautious approach to sending vessels through the Strait of Hormuz. Many operators are waiting for clearer information about security arrangements and operating conditions.
This caution could delay the recovery of oil shipments even after the agreement officially takes effect.
Full Recovery Could Take Longer Than Expected
Analysts have warned that restoring normal oil flows may take longer than markets currently anticipate.
Security checks, damaged infrastructure and logistical challenges could slow the reopening process. These factors may continue to support oil prices in the near term.
Although crude has fallen from its wartime peaks, prices remain above the levels recorded before the conflict began.
Higher Oil Prices Add to Inflation Pressure
The recent surge in energy prices has also affected the monetary policy outlook for major central banks.
The Federal Reserve is widely expected to leave interest rates unchanged on Wednesday. Policymakers are closely monitoring US inflation, which accelerated to a three-year high in May.
A sharp increase in gasoline prices was one of the main contributors to the inflation rise.
ECB Warns About Energy-Driven Inflation
The European Central Bank raised interest rates last week and warned about the effects of an energy-related inflation wave.
Persistently high energy prices could force central banks to maintain restrictive monetary policies for longer than previously expected.
Higher interest rates can weaken economic activity and reduce demand for oil from businesses and consumers.
Markets Shift Focus to Interest Rates
Laurence Booth, Global Head of Markets at CMC Markets, said investors may now be shifting their attention away from the geopolitical risk premium.
Markets appear increasingly confident that tensions in the Middle East will ease. However, they may be underestimating how long central banks will need to keep interest rates elevated if inflation remains persistent.
This transition from geopolitical uncertainty to a higher-for-longer interest rate environment could become a key driver of oil prices in the coming months.
