Oil slips again as US, Iran sign peace deal

Oil prices experienced a downturn in early trading as the United States and Iran announced the signing of an interim agreement aimed at ending the Iran war. The deal promises to reopen the vital Strait of Hormuz and lift U.S. sanctions on Tehran's oil exports, potentially resolving a major disruption to global energy supplies.

Brent crude futures saw a decrease of 1.12 percent, trading at $78.66 a barrel, while U.S. West Texas Intermediate futures fell 1.28 percent to $75.81 a barrel. These benchmarks reversed earlier gains made on Wednesday, following a statement from U.S. President Donald Trump suggesting a potential resumption of bombing campaigns if Iran's leadership did not comply.

Energy markets are aggressively factoring in the anticipated return of Iranian oil to the global market sooner than expected, following the recent U.S.-Iran memorandum of understanding. This 14-point memorandum initiates a 60-day negotiation period. During this time, Iran has agreed to ensure toll-free passage through the Strait of Hormuz, a crucial route for oil and gas transportation, with full traffic capacity expected to be restored within 30 days.

The preliminary accord, however, defers resolution on more complex issues, including Iran's nuclear program. It also mandates that the U.S. and its allies develop a $300 billion financial plan to support Iran's economic recovery. The International Energy Agency (IEA) cautioned in its monthly report that if the agreement is successfully implemented and the strait reopened, the current supply crisis could transform into a significant supply glut by 2027. The IEA forecasts that global supply will exceed demand by 5.05 million barrels per day next year as Middle Eastern oil re-enters the market.

Adding to market uncertainty, the U.S. Federal Reserve is increasingly considering whether to raise interest rates later this year to combat inflation. Such a move could potentially slow economic growth and dampen oil demand. Projections released on Wednesday indicated that nine out of nineteen Fed policymakers now believe a rate hike will be necessary, a notable shift from three months prior when none held this view.

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The sell-off extended as energy markets continued to aggressively price in a faster-than-expected return of Iranian barrels following the recent U.S.-Iran memorandum of understanding.