Oil prices moved lower on Thursday after the United States and Iran signed a memorandum of understanding aimed at permanently ending their conflict and reopening the Strait of Hormuz.
The agreement raised expectations that disrupted energy supplies could gradually return to the global market.
Brent and WTI Fall to Multi-Month Lows
Brent crude futures, the global oil benchmark, dropped 2.7% to $77.38 per barrel during morning trading in the United States.
Meanwhile, U.S. West Texas Intermediate crude futures declined 3.7% to approximately $74 per barrel.
Both oil contracts briefly reached their lowest levels since early March.
Prices had gained around 1% during the previous session after U.S. President Donald Trump said the agreement with Tehran had not yet been finalized. He also warned that military action could restart if negotiations failed.
Oil Prices Extend Their Weekly Decline
Including Thursday’s losses, crude oil prices have now fallen during five of the past six trading sessions.
Oil has declined by nearly 11% since the beginning of the week as investors reassess the risks surrounding Middle Eastern supply disruptions.
Markets are now examining the initial details of the U.S.-Iran agreement, which was signed by President Trump and Iranian President Masoud Pezeshkian.
U.S.-Iran Agreement Could Reopen the Strait of Hormuz
The proposed agreement includes an end to hostilities and a gradual reduction of U.S. restrictions on Iranian oil exports.
It also calls for the reopening of the Strait of Hormuz, one of the world’s most important energy shipping routes.
Around one-fifth of global oil and liquefied natural gas supplies normally pass through the waterway. However, the strait has remained largely closed during the conflict, which has lasted for more than three months.
The disruption pushed crude prices above their pre-war levels and increased concerns about another global inflation shock.
Oil Supply Recovery May Take Time
Despite the latest decline, some analysts believe oil prices could remain elevated for an extended period.
The reopening of the Strait of Hormuz may happen gradually. Energy companies will need time to address operational, logistical and sanctions-related challenges before oil flows fully recover.
ING analysts said Iran expects U.S. oil sanctions to be lifted quickly, allowing the country to increase exports.
However, they warned that uncertainty remains over how rapidly Iranian crude can return to international markets.
Iranian Oil Exports Could Increase Global Supply
The possibility of additional Iranian oil entering the market has strengthened expectations for a recovery in global supply.
Oil production and transportation across the Gulf region have faced weeks of disruption due to the conflict. A permanent peace agreement could allow output and shipping activity to normalize.
The return of Iranian exports would add further supply to a market that may already be heading toward a significant surplus.
IEA Forecast Adds Pressure to Oil Prices
The International Energy Agency expects global oil markets to move into a substantial surplus once Middle Eastern production fully recovers.
The agency forecasts that global oil supply could increase by approximately 8 million barrels per day between 2026 and 2027.
By comparison, worldwide demand is expected to grow by only around 2 million barrels per day during the same period.
This imbalance could create a surplus of more than 5 million barrels per day by 2027.
ING analysts said the IEA’s latest monthly report added to the bearish outlook for crude oil prices.
Federal Reserve Outlook Raises Demand Concerns
Oil traders also assessed the Federal Reserve’s latest monetary policy decision.
The central bank kept interest rates unchanged, as expected. However, policymakers indicated that another rate increase could take place later in the year.
Higher borrowing costs can slow economic activity by reducing consumer spending and business investment.
A weaker economy could also lower demand for fuel and other energy products, placing additional pressure on oil prices.
