Oil prices remained above pre-war levels on Tuesday, trading around $80 per barrel, after the US and Iran signed a memorandum of understanding (MoU) to end the conflict, according to Business Today. The benchmarks were still higher than Monday, with WTI crude at $81.12 per barrel, up $0.37 (0.46%), and Brent crude at $83.43 per barrel, up $0.26 (0.31%), as of 7:15 am IST.
Price Action and Recent Turmoil
On Monday, oil prices fell by nearly 5% to their lowest close since March 4, after US President Donald Trump said the MoU had been signed to end the conflict, Business Today reported. Although prices remain above the roughly $70 per barrel seen before the war, they are lower than the more than $100 per barrel recorded just a few weeks ago. The decline has raised hopes that lower energy costs could ease pressure on households and businesses that have faced higher prices for essentials ranging from food and fuel to fertiliser because of the conflict with Iran.
| Benchmark | Pre-war Price | Recent High | Current Price (Tuesday) |
|---|---|---|---|
| WTI | ~$70 | >$100 | $81.12 |
| Brent | ~$70 | >$100 | $83.43 |
Supply Side: Strait of Hormuz and Production Shutdowns
The war had choked the Strait of Hormuz, a crucial shipping route that typically carried one-fifth of the world's oil supply before the conflict, and resulted in around 14 million barrels per day of output being shut in, according to Business Today. Iran confirmed the deal, although it does not represent a final agreement on issues including Iran's nuclear programme. Negotiations on those matters are expected to continue over the next 60 days.
Despite the optimism fueled by the announcement, the full details of the MoU have not been made public and a permanent truce has yet to be established. Early indications suggest the agreement could reopen the blockaded Strait of Hormuz and extend a ceasefire for 60 days, allowing negotiators to address complex issues such as the future of Iran's nuclear programme. Iranian President Masoud Pezeshkian described the US-Iran MoU as an "important step" towards ending the fighting but said that a final agreement securing a lasting truce "has yet to take shape." A senior Iranian official said on Monday that, pending a final agreement, Iran would freeze its nuclear activity by refraining from further uranium enrichment or expanding its nuclear facilities.
Demand Outlook and Market Recovery Timeline
Even if the Strait of Hormuz reopens fully on Friday as expected, it is likely to take months for the energy sector to return to full operating capacity. Tankers will still require time to enter ports, load cargo and complete voyages to Asian markets, which are the principal buyers of Gulf oil exported by Saudi Arabia, Iraq, Bahrain, the United Arab Emirates, Kuwait and Oman. The prospect of a reopening has already weighed on prices, but the physical flow of crude to global markets will take time to normalize, potentially keeping prices elevated in the near term.
Sources:
