Key facts
- Oil prices are on track for their largest quarterly decline since the COVID-19 pandemic.
- Brent crude is set for a 30% quarterly slump, with June prices down as much as 22%.
- US and Iran concluded indirect talks focused on maritime traffic in the Strait of Hormuz and unfreezing Iranian funds.
- The Strait of Hormuz is critical for global oil supply, handling one-fifth of global oil.
- OPEC+ countries are expected to agree to a further hike in output targets from August.
- US crude inventories decreased by 3.8 million barrels last week, reaching their lowest level since September 2018.
Oil prices are poised for their largest quarterly decline since the COVID-19 pandemic, with Brent crude on track for a 30% slump. This downturn follows indirect talks between the U.S. and Iran that focused on maritime traffic through the Strait of Hormuz and the potential unfreezing of Iranian funds. Analysts suggest that markets may be underestimating the risk of renewed disruptions, despite improving sentiment and a return to pre-war price levels.
Brent crude futures were set to finish the quarter down 30.4%, the steepest decline since the first quarter of 2020 when prices plummeted 65.5% amid global lockdowns. In June alone, oil prices lost as much as 22% as of early Tuesday, following a memorandum of understanding signed mid-June between the U.S. and Iran to continue negotiations on a potential peace deal by August. Both Brent and WTI benchmarks have fallen to levels seen just before the initial attacks on Iran in late February.
The market's optimism stems from hopes that the Strait of Hormuz, which handles a significant portion of global oil supply, will remain open. Investment banks have revised their oil price forecasts downward following the announcement of the MoU. However, many analysts caution against excessive optimism, noting that the current price action reflects a market treating a temporary ceasefire as a permanent deal, with geopolitical risk premium largely priced out.
Adding to supply-side pressures, OPEC+ countries are expected to agree to an increased output target from August. Meanwhile, U.S. crude inventories saw a draw of 3.8 million barrels last week, reaching their lowest level since September 2018, though this draw was smaller than anticipated.