Oil prices extended their decline on Thursday, falling close to levels last seen before the beginning of the Iran war. Expectations of rising Middle East oil supply outweighed concerns about global demand.
Brent crude futures for August delivery dropped by $1.06, or 1.44%, to $72.68 per barrel by 06:39 GMT.
Meanwhile, U.S. West Texas Intermediate crude fell by 76 cents, or 1.08%, to $69.58 per barrel.
Both oil benchmarks reached their lowest levels since February 27.
Brent Market Signals Ample Short-Term Supply
August Brent crude traded below the September contract, which was priced at $73.59 per barrel. This market structure suggested that short-term oil supply was becoming increasingly available.
IG analyst Tony Sycamore said the speed of the oil price decline had surprised many traders. Markets are now pricing in a much faster return of Middle Eastern supply than investors expected only two weeks earlier.
Brent crude had already fallen by more than $3 on Wednesday as supply concerns eased. WTI also settled almost $3 lower during the previous session.
Strait of Hormuz Oil Flows Recover
U.S. Energy Secretary Chris Wright said oil flows through the Strait of Hormuz were approaching levels recorded before the Iran war.
According to Wright, at least 20 million barrels of oil had passed through the strait during the previous 24 hours.
However, a complete return to normal operations could take several weeks because the waterway still needs to be cleared of mines.
The reopening of the Strait of Hormuz has reduced fears of a major disruption to global oil shipments.
Iranian Oil Sales Add Pressure to Prices
Rising Middle Eastern supply has been accompanied by expectations that Iran will increase its oil sales following a temporary easing of U.S. sanctions.
These developments have pushed down the prices of physical crude oil cargoes across international markets.
An initial agreement reached last week to end the conflict between the United States, Israel and Iran allowed shipping traffic through the Strait of Hormuz to resume.
The conflict had started on February 28.
Negotiations Begin During 60-Day Truce
The agreement established a 60-day negotiation period aimed at resolving more difficult issues, including Iran’s nuclear programme.
Wright said oil shipments would continue through the Strait of Hormuz even if the agreement eventually collapsed. He also argued that Iran would not be able to close the strategic waterway again.
Oman opened temporary shipping routes on Wednesday to help tankers leave the strait. The International Maritime Organization and Omani authorities coordinated the tanker movements.
Qatar’s prime minister also travelled to Oman for discussions about potential negotiations over the future management of the strait.
The proposed talks could involve Iran, Iraq and several Gulf countries.
Analysts Expect Oil Prices to Normalise
Macquarie analysts expect crude oil prices to move rapidly toward their pre-war levels as supply chains adjust and the Strait of Hormuz continues reopening.
The analysts forecast that Brent crude will average $67 per barrel during the third quarter. WTI is expected to average approximately $62 per barrel.
These projections are significantly lower than the second-quarter averages of $94 for Brent and $87 for WTI.
U.S. Crude Inventories Fall to Multi-Decade Low
U.S. crude oil inventories fell to their lowest level since 1984 last week, according to the Energy Information Administration.
The decline was driven by strong refinery demand and releases from the U.S. emergency oil reserve.
However, the inventory figures had little effect on oil prices. Traders remained focused on Middle Eastern supply and developments surrounding the Strait of Hormuz.
