Oil Prices Fall After Deal Signals
Oil prices fell sharply on Thursday (June 4th) after the market signaled that the US and Iran were moving closer to a peace agreement, following a conditional ceasefire between Israel and Lebanon. WTI fell more than 3% to close the session at US$93.04/barrel, ending a three-day rally, while Brent for August fell 2.8% to US$95.03/barrel.
News of the Israel-Lebanon ceasefire was seen as fulfilling one of Iran's bargaining chips, paving the way for a Washington-Tehran agreement to extend the ceasefire by two months and reopen the Strait of Hormuz. Prices were further pressured after Trump tweeted on social media that talks were in the "final stages," reinforcing the perception that certainty might soon be on the horizon.
However, obstacles remain. Iran has cited no recent progress in the talks, while Iran-backed Hezbollah has reportedly rejected the US-brokered ceasefire. On the physical side, Hormuz remains effectively closed—even though this passage is a crucial chokepoint for about a fifth of the world's seaborne oil supply—meaning a "headline deal" doesn't automatically restore oil flows.
Supply fundamentals also remain tight. US data shows that stockpiles at Cushing, Oklahoma, fell for the sixth consecutive week and are approaching minimum operational levels, indicating a dwindling supply cushion. This week, concerns about dwindling stocks briefly fueled an oil rally before sentiment reversed on hopes of a deal.
Trump said Hormuz would be opened "soon" if Iran signs a memorandum of understanding (MoU) on the cessation of hostilities, with the condition that certain areas be cleared of mines. However, the market still considers execution and the normalization of shipping flows key. As long as Hormuz remains operational, supply risk premiums and energy inflation concerns could quickly rise again if negotiations stall again.
In other words, today's decline reflects the market reducing risk premiums based on the "deal is getting closer" headline, but volatility remains potentially high due to political-military hurdles and evidence that physical flows have not yet fully changed. (Arl)*
Source: Newsmaker.id
