Washington, Jun 15

Crude oil prices fell sharply dropping to their lowest levels in more than three months after the US and Iran agreed to extend their ceasefire, boosting expectations that shipping through the Strait of Hormuz could soon return to levels closer to their pre-war setting.

Brent crude, the global benchmark, fell 3.6% to $84.21 a barrel after initially posting even steeper losses. US benchmark West Texas Intermediate (WTI) dropped more than 4% to $81.38 a barrel, reports Axios.

The decline comes amid reports that Washington and Tehran had reached an agreement that could pave the way for the reopening of the strategic waterway, through which roughly one-fifth of global oil trade normally passes.
Due to the strait's disruption, tanker traffic in the strait fell to an all-time low and triggered a sharp rise in energy prices worldwide.

The resulting supply shock led to surging fuel costs across all major economies such as China, Japan, South Korea, GCC nations, the EU, Britain, Singapore and drove US petrol prices to their highest levels since 2022, adding to the many economic and political woes of the ruling GOP ahead of the midterm elections.

Average US petrol prices climbed to around $4.56 per gallon in May before easing in recent weeks. According to AAA data, the national average has since fallen to about $4.07 per gallon, although that remains more than $1 above pre-war levels.

The latest agreement is considered as being the most significant diplomatic breakthrough since the war began, and if implemented, could substantially boost tanker traffic through the Strait of Hormuz and help ease concerns over global energy supplies.

Questions continue to hover over how quickly shipowners and operators will regain confidence in using the route after months of disruption and security concerns.

The market also faces practical challenges. Even if the waterway is fully reopened, Gulf producers that reduced output when exports were disrupted will need time to restore production and rebuild supply chains.

As a result, while oil prices have reacted quickly to signs of progress, industry experts expect the process of normalising energy markets to take considerably longer, with pre-war shipping unlikely to be restored any time soon.

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