This time, it's for real?

After so many pronouncements, threats, deadlines and reversals from President Trump, the US and Iran finally signed a memorandum of understanding aimed at paving the way for a permanent peace deal.

- WILSON SY

This time, there is a signed agreement, a reopening of the Strait of Hormuz and immediate relief in oil markets.

Oil loses its war premium

Oil prices were already telling a different story even before the deal was signed. From a March peak of almost $120 per barrel, Brent crude has fallen back toward the $80 level, while WTI is trading near the mid-$70s. After fears of a prolonged shutdown of the Strait of Hormuz had pushed prices sharply higher earlier this year, crude is back just above pre-war levels.

The chart below shows that traders were pricing in the re-opening of Hormuz, the resumption of Gulf exports and the replenishment of global supplies. This reflects the unwinding of the war premium in crude.

Supply glut ahead

Beyond the immediate drop in oil prices, the bigger story may be supply. The International Energy Agency (IEA) expects the global oil market to swing into a large surplus by 2027 as Middle East production and exports recover from the disruption caused by the war.

The IEA expects global oil supply to increase by around eight million barrels per day, bringing total supply to roughly 110 million barrels per day in 2027. Demand, by contrast, is expected to increase by only two million barrels per day, bringing total demand to 105.3 million barrels per day. That gap points to a potential surplus of almost five million barrels per day.