The price of Brent crude fell below $80 per barrel following a 5 per cent slide for a second day in a row as details emerged of an interim deal to end the war in the Middle East and reopen the Strait of Hormuz, including an agreement to allow Iran to sell oil on Tuesday.
Brent futures lost $4.21 or 5.1 per cent yesterday to settle at $78.96 a barrel, while the US West Texas Intermediate (WTI) crude fell $4.70 or 5.8 per cent to $76.05 per barrel.
Details of the interim deal to end the war began to emerge on Tuesday, with US President Donald Trump saying it will rule out a nuclear weapon for Iran. He said the text of the deal states clearly that Iran will not have a nuclear weapon, and the full agreement would be made public in a formal setting in a few days.
Speaking at the G7 meetings in France, the American President added that he liked the idea of sending the Iran deal to Congress for review, a request by some Republican lawmakers.
According to Reuters, a senior US official said the deal allows Iran to immediately begin selling oil and fuel, and included banking, transportation and insurance services to facilitate the sales. The official added the agreement has conditions.
The deal would extend a tenuous ceasefire announced in April by another 60 days and reopen the Strait of Hormuz, which Iran has effectively blocked since the US and Israel first attacked Iran.
Under the agreement, Iran will be allowed to immediately resume oil and fuel sales, according to the Wall Street Journal, along with the banking, insurance, and shipping services needed to move those cargoes. The deal effectively reconnects one of the world’s largest oil producers to global energy markets overnight.
The market is also betting that traffic through Hormuz will normalise, easing fears over a chokepoint that normally handles roughly a fifth of global oil flows.
The speed of the decline highlights just how much of crude’s rally had become tied to geopolitical risk.
Other factors weighing on oil prices included worries about China’s economy, rising global inflation and interest rates, and US calls for peace between Russia and Ukraine.
The American Petroleum Institute (API) estimated that crude oil inventories in the United States fell by 8.33 million barrels in the week ending June 12. Official data from the US Energy Information Administration (EIA) will be released later on Wednesday.