By: Economy Middle East

Oil prices continued to fall on Thursday, moving closer to levels seen before the Middle East conflict as tankers delayed in the Strait of Hormuz resumed transit after a preliminary agreement to end the U.S.-Israeli conflict with Iran eased fears over supply disruptions.

As of 4:03 GMT, Brent crude futures slipped $1.30 or 1.76 percent to $72.44 a barrel, while U.S. West Texas Intermediate crude slipped $1.09 or 1.55 percent to $69.25 per barrel.

“The move lower may appear counterintuitive given that the world has just experienced the largest oil supply disruption on record, resulting in an estimated 1.3 billion barrels of lost production from the Middle East. However, in the short term, the market is no longer focused on the barrels that were lost. Instead, attention has shifted to the barrels that may soon return,” said Ole Hansen, Head of Commodity Strategy, Saxo Bank.

Concerns over supply disruptions fade

Oil prices had dropped more than $3 on Wednesday as concerns over potential supply disruptions continued to fade.

Speaking at a forum on Wednesday, U.S. Energy Secretary Chris Wright said oil shipments through the Strait of Hormuz had largely returned to pre-conflict levels, noting that at least 20 million barrels had passed through the waterway over the previous 24 hours. He added that a full return to normal operations could take several weeks as demining efforts were still underway.

“In the last 24 hours, 72 ships and 20 million barrels of oil have transited through the Strait of Hormuz — fully restoring pre-conflict flows,” he said.

The preliminary agreement reached last week to end the U.S.-Israeli conflict with Iran, which began on February 28, has helped restore maritime traffic through the strategic strait. The deal also established a 60-day negotiation period to address more complex issues, including Iran’s nuclear program.

Wright said oil exports would continue to move through the Strait of Hormuz even if the agreement ultimately collapsed, adding that Iran would be unable to shut down the waterway again.

“With shipping traffic steadily improving through the Strait of Hormuz, traders are increasingly focused on a growing queue of cargoes waiting to move. Millions of barrels are already loaded on tankers that were unable to leave the Gulf during the disruption, while hundreds of additional vessels remain positioned outside the region waiting to load,” said Hansen.

“The result is a potential surge of supply entering the market at a time when buyers are showing signs of caution,” he added.

Oman opens temporary navigation routes in Strait of Hormuz
Oil prices fell as Oman on Wednesday introduced temporary navigation routes to facilitate tanker traffic leaving the Strait of Hormuz, with vessel movements being coordinated by the International Maritime Organization and Omani authorities.

Meanwhile, Qatar’s prime minister traveled to Oman to discuss launching talks with Iran, Iraq and Gulf countries on the future management of the strategic waterway.

“Near term, crude remains exposed to further weakness as the physical market clears stranded barrels and Middle Eastern grades compete aggressively for buyers. However, a sustained return to the old pre-war Brent range of USD 60–70 looks unlikely unless demand destruction deepens materially,” said Hansen.

Separately, the U.S. Energy Information Administration (EIA) reported that U.S. crude oil inventories fell to their lowest level since 1984 last week, driven by strong refinery demand and government releases from the Strategic Petroleum Reserve. Despite the sharp decline in stockpiles, markets showed little reaction to the data as traders remained focused on developments in the Strait of Hormuz.

“Inventories have been drawn down, strategic reserves must eventually be rebuilt, and the cost of securing energy supply has risen. In our view, the market is moving from crisis pricing to clearance pricing, but not back to a world where supply security can be taken for granted,” he said.