Oil falls as supply starts moving through Strait of Hormuz

Oil prices dipped on Friday amid expectations that increased supply will soon reach global markets, following the resumption of tanker traffic through the Strait of Hormuz. This development came shortly after the U.S. and Iran signed an interim peace agreement.

Brent crude futures saw a decrease of 54 cents, or 0.68 percent, settling at $78.31 per barrel. U.S. West Texas Intermediate crude also experienced a decline, slipping 46 cents, or 0.60 percent, to $76.14 a barrel. The front-month July contract is set to expire on Monday, while the more actively traded August contract was priced at $75.06 a barrel, down 79 cents.

Both major oil benchmarks had reached their lowest points since early March on Thursday. This drop occurred as several tankers, including three Saudi-flagged vessels carrying 6 million barrels of crude, successfully navigated the strait. This passage began just hours after U.S. President Donald Trump finalized a peace deal with Iran, aimed at ending their conflict.

Analysts anticipate that the agreement could release more than 85 million barrels of oil, which had been stranded in the Middle East Gulf, back into global markets. Furthermore, the deal includes the lifting of U.S. sanctions on Iranian oil, which would significantly boost global supply. "Traders are still waiting for hard evidence that tanker traffic through the Strait of Hormuz is actually normalizing before committing to the next leg lower," noted Tim Waterer, Chief Market Analyst at KCM. "Until those ships start moving consistently again, skepticism lingers and keeps a lid on the downside."

Before the conflict, approximately one-fifth of the world's oil and liquefied natural gas transited through the Strait of Hormuz. Analysts suggest that trade could return to pre-war levels within months if the U.S.-Iran deal remains stable. Producers in the Middle East are also preparing to resume exports. Kuwait Petroleum Corp announced on Thursday that all force majeure notices issued during the war had been lifted with immediate effect. Iraq's Oil Minister Basim Mohammed stated that the country's oilfields are ready to resume production, with a gradual return to normal output levels expected.

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Traders are still waiting for hard evidence that tanker traffic through the Strait of Hormuz is actually normalizing before committing to the next leg lower. Until those ships start moving consistently again, scepticism lingers and keeps a lid on the downside.