Key facts
- President Trump announced a preliminary agreement with Iran to end the U.S.-Israeli war.
- The announcement led to a nearly 5% drop in crude oil prices and a surge in US equities.
- Oil prices rebounded as traders awaited details of the agreement.
- Global oil inventories are expected to take time to recover after prolonged disruptions.
- The Strait of Hormuz, a key shipping route, was closed due to the conflict.
Oil prices saw a rebound on Tuesday after a significant selloff the previous day, during which crude oil futures fell nearly 5% to their lowest level since March 4. The decline followed U.S. President Donald Trump's announcement of a memorandum of understanding aimed at ending the U.S.-Israeli conflict with Iran. Brent crude futures rose 0.3% to $83.42 a barrel, and U.S. West Texas Intermediate crude gained 0.3% to $81.12 a barrel as of 0108 GMT.
The closure of the Strait of Hormuz, a critical shipping route handling approximately one-fifth of global oil supply, had previously led to about 14 million barrels per day of production being halted. However, market optimism has been tempered by the lack of specific details regarding the preliminary agreement and the absence of a finalized permanent truce. Initial indications suggest the memorandum could facilitate the reopening of the Strait of Hormuz and extend a ceasefire for 60 days, allowing time for negotiations on more complex issues, including Iran's nuclear program.
Iranian President Masoud Pezeshkian characterized the U.S.-Iran memorandum of understanding as an "important step" toward ending the fighting, but emphasized that a final agreement for a lasting ceasefire has not yet been reached. Experts suggest that global oil inventories, depleted during the prolonged closure of the Strait of Hormuz, will require time to replenish, and stockpiles are likely to decrease further before new supplies become available. Market participants are closely observing the speed at which Middle Eastern producers can resume output and exports, as well as the gradual return of shipping traffic to the region. Analysts caution that even if the ceasefire holds, normalization of shipping through the Strait of Hormuz could take months, and any damage to energy infrastructure could further delay recovery. Last month, Saudi Aramco CEO Amin Nasser warned that disruptions in the Strait of Hormuz could postpone global oil market stability until 2027, potentially affecting nearly 100 million barrels of oil supply weekly.
Separately, Rick Rieder of BlackRock Inc. noted that the surge in U.S. equities reflects investors beginning to reallocate an estimated $8 trillion to $9 trillion from money market funds.