A man fills his car with petrol in the early morning at the petrol station in Selangor, Malaysia, Monday. Oil falls over 4 percent after U.S. and Iran reach peace deal to end war. EPA-Yonhap
HOUSTON — Oil prices slumped 5 percent to a three-month low on Monday amid a broad selloff after the U.S. and Iran said they agreed terms to end their war and reopen the Strait of Hormuz. Brent crude futures fell $4.38, or 5.02 percent, to $82.95 a barrel by 10:54 a.m. EDT (1455 GMT) and U.S. West Texas Intermediate was at $80.28, down $4.60, or 5.42 percent. Both contracts fell to their lowest levels since March 10 on Monday after tumbling more than 3 percent on Friday.
WTI futures fell as much as $5 during the session. The U.S. and Iran will sign a memorandum of understanding in Switzerland on Friday, said the prime minister of Pakistan, whose country has served as a mediator. Trump said on Sunday that the Strait of Hormuz would be open "toll free" and that a U.S. naval blockade of Iranian ports would also end, though it remains in effect pending completion of the ceasefire agreement.
Iran's semi-official Mehr news agency said the draft deal called for reopening the Strait of Hormuz within 30 days under Iranian arrangements. "With a wall of oil supply very possibly on the way, the sell-off looks justified," said Dennis Kissler, senior vice president of trading at Bok Financial.
The world has lost millions of barrels of oil and gas supply since the war closed the Strait of Hormuz, a chokepoint for a fifth of the world's oil and liquefied natural gas supplies, for more than three months. It is unclear, however, how quickly those barrels will return to market once the waterway is opened.
"Getting the vessel supply chain in place and the restarts all running smoothly within the Arab Gulf will be tough. And some vessel owners will be hesitant to ballast towards the Arab Gulf until we hear from insurers," said Neil Crosby, head of research at Sparta Commodities.
Investors are also watching cautiously how quickly Middle Eastern producers can resume oil production and exports following damage from the war and whether more ships will enter the region.
"If we look at the pre-war range being around $60 to $70 in Brent, I would expect that the new price floor has moved higher from 60 back in the December/January window, perhaps as high as $75 or $80 going forward, with some risk to the upside," Saxo Bank analyst Ole Hansen said.
Lower oil inventory levels, a slower process to restart production and the refilling of strategic oil inventories should support oil prices in the longer term, said UBS analyst Giovanni Staunovo. Stockpiles in the world's largest economies are headed toward their lowest levels since at least 2003, squeezed at a record pace due to the lost Gulf output, according to the U.S. Energy Information Administration.
More than 14 million bpd of oil output is shut, or about 14 percent of world demand, according to the International Energy Agency's most recent report. A full return to pre-war production and refining levels is likely to take weeks, months or even years, industry officials say.
Source: Korea Times News
