Oil drops below $80 on US-Iran deal

Oil prices dropped below $80 a barrel on Tuesday, hitting a three-month low, as optimism grew over the potential reopening of the Strait of Hormuz and easing inflation pressures on global economies.

Brent North Sea crude, the international benchmark, slid 4.0 percent to $79.87 a barrel, marking the first time it dipped below $80 since early March. The main US oil contract, West Texas Intermediate, also fell 4.7 percent to under $77 a barrel.

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It’s normal for markets to want to consolidate their gains after strong up days, especially now that we’re still trying to figure out exactly what’s in the agreement that’s been signed.

The optimism stems from US President Donald Trump's statement that the Strait of Hormuz would "completely open" once Washington and Iran sign their peace agreement on Friday in Switzerland. Iranian media reported that three oil tankers and two cargo ships had already passed through the vital waterway.

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Although the deal has not been formally signed, there already appears to be a peace dividend for markets.

Wall Street showed a mixed reaction, with the Dow Jones Industrial Average adding 0.8 percent, while the broader S&P 500 dipped 0.2 percent and the Nasdaq shed 0.4 percent. "It's normal for markets to want to consolidate their gains after strong up days, especially now that we're still trying to figure out exactly what's in the agreement that's been signed," said Steve Sosnick of Interactive Brokers.

Despite the fall in oil prices, analysts warned that market conditions could remain tight for weeks or months. "Oil prices, for now, are hovering at the lowest level in two months... but it's still trading at a premium compared to pre-conflict levels, demonstrating the ongoing uncertainties about supplies," said Susannah Streeter, chief investment strategist at Wealth Club. US Energy Department data also showed that America's strategic oil stockpiles sank last week to their lowest level since 1983, indicating sustained demand for rebuilding even if the conflict ends.

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Oil prices, for now, are hovering at the lowest level in two months… but it’s still trading at a premium compared to pre-conflict levels, demonstrating the ongoing uncertainties about supplies.