World oil prices fell significantly on Thursday following reports of an agreement between the U.S. and Iran to end the war in the Middle East. The market reacted primarily to the prospect of restoring shipping through the Strait of Hormuz — one of the key routes for global oil trade.
The oil market retraced some of its recent gains after signs of de-escalation in the Middle East conflict emerged.
On Thursday, the price of Brent crude oil fell by 3.02% to $77.15 per barrel. American oil WTI dropped even more sharply — by 3.4% to $74.18 per barrel.
The main reason for the price decline was reports of an agreement reached between the U.S. and Iran.
The first to report on the signing of a memorandum of understanding was Axios correspondent Barak Ravid.
"Two American officials told me that the U.S. and Iran remotely signed a memorandum of understanding to end the war on Wednesday, which has already come into effect," the journalist wrote on the social media platform X.
Later, the American side confirmed the signing of the document.
According to sources, U.S. President Donald Trump signed the agreement during dinner with French President Emmanuel Macron after the G7 summit.
On Thursday morning, Iran also confirmed the information about the signing of the document.
For the oil market, a key point of the agreement was the restoration of shipping through the Strait of Hormuz. Concerns about potential restrictions on movement through this strategic route had previously triggered a sharp rise in energy prices.
What is important to know: a significant portion of the world's oil and liquefied gas exports passes through the Strait of Hormuz. Any threats to shipping in this area almost instantly reflect on global fuel prices.
Now, investors are hoping for a reduction in supply disruption risks and a gradual normalization of the situation in the region. Therefore, the market has begun to shed the so-called "war premium" that had been factored into oil prices during the conflict.
In the coming days, traders' attention will be focused on the implementation of the reached agreements and the actual restoration of movement through the Strait of Hormuz.
The sustainability of the ceasefire will determine the further dynamics of oil prices.
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