Oil Prices Drop Below $100, Iran-US Deal Potential
Oil prices extended their decline on Thursday (May 7), falling around 4% and dragging Brent back below US$100 per barrel amid renewed hopes for a US-Iran peace deal that could gradually open the Strait of Hormuz. Brent fell US$3.93, or 3.9%, to US$97.34 per barrel at 13:23 GMT, while WTI fell US$3.95, or around 4.2%, to US$91.13.
Movements were volatile, with Brent fluctuating from up around 1% to down 4.6% compared to its previous close. This decline followed a more than 7% decline on Wednesday that put both benchmarks at two-week lows, as markets quickly corrected geopolitical premiums when the probability of a de-escalation in the conflict rose again.
Sources and officials say the US and Iran are moving toward a limited and temporary agreement to end the war, based on a draft framework that halts fighting but leaves the most sensitive issues unresolved, in the format of a short-term memorandum rather than a comprehensive peace treaty. The market is also weighing media reports alleging an "understanding" to ease the US blockade in exchange for a gradual opening of Hormuz, as well as separate reports regarding the uranium issue—both of which have yet to be verified.
Fundamentally, this narrative operates through the supply risk premium channel: the greater the chance of normalizing Hormuz tanker flows, the faster the logistics disruption premium will be released from paper (futures) prices. However, some analysts believe the impact on the physical market could be slower, as adjustments to trade flows and contracts take weeks to months. The variables currently being monitored by the market are clarity on the content and status of the US-Iran memorandum, official confirmation regarding Hormuz access, and the agenda for next week's US-China meeting, which is said to discuss the issue—all of which have the potential to maintain high volatility.
Source: Newsmaker.id
