West Texas Intermediate (WTI) US Oil trades around $78.45 at the time of writing on Monday, down 7.76% on the day, as investors unwind the geopolitical risk premium following announcements of a potential agreement between the United States (US) and Iran.
US President Donald Trump said that a large-scale military strike against Iran had been suspended after Tehran agreed to the framework of a deal covering its nuclear program and the reopening of the Strait of Hormuz
The US President also said that talks between the two countries are scheduled to begin on Monday afternoon, fueling expectations of a de-escalation that could reduce the risk of disruptions to global Oil supplies. However, Iran’s Foreign Ministry struck a more cautious tone. Spokesperson Esmail Baghaie said that Tehran is currently holding no discussions with the United States regarding the reopening of the Strait of Hormuz, while confirming that talks with Oman on the issue are ongoing.
Meanwhile, the Organization of the Petroleum Exporting Countries and its allies (OPEC+) agreed on Sunday to increase production quotas by around 188,000 barrels per day from September, completing the unwinding of the voluntary output cuts introduced in 2023. The prospect of a stronger supply is adding further downward pressure on Oil prices. Oil retreats as US-Iran diplomacy tempers fears but supply constraints persist According to TD Securities, “renewed deal hopes have seen CTAs turn modest sellers of crude oil,” but the bank argues that “the market read is overly bearish, with global flows remaining heavily constrained.” Strategists highlight that “the production recovery in the Middle East has faltered amid the latest escalations,” warning that “any potential agreement similar to those that have failed within weeks, likely won’t be enough to generate sufficient and consistent incoming tanker traffic.” They note that “flows through Hormuz, including Gulf of Oman ship-to-ship transfers, have been at 3-4.5m b/d in the…