The oil market went down by $4 a barrel to a three-month low on Monday after President Donald Trump said the United States and Iran have signed a memorandum of understanding aiming to end the Iran war and reopen the Strait of Hormuz.
Brent crude futures declined by $4.16 or 4.76 per cent to $83.17 a barrel, and the US West Texas Intermediate (WTI) crude futures shed $4.13 or 4.87 per cent to sell for $80.75 a barrel.
The US and Iran reached a deal to reopen the Strait of Hormuz, though analysts voiced caution over the agreement’s prospects. According to reports, the MoU has been signed by President Donald Trump, Vice President JD Vance and Iranian Parliament Speaker, Mr Mohammad Bagher Qalibaf.
Pakistan and Qatar, the two lead mediators in the deal, also confirmed the agreement, while an official signing ceremony for the agreement is due to be held on Friday in Geneva.
Reuters reported that the draft deal called for reopening the Strait of Hormuz within 30 days under Iranian arrangements, while President Trump said ships could traverse the waterway within days and would not be charged a toll.
Market analysts noted that the deal and the potentially imminent reopening of the Strait of Hormuz do not mean that the oil and gas trade will quickly return to its previous levels. The announcement of the deal is just the first step, and it could take months for oil and gas shipments in the region to return to pre-war levels.
The world has lost millions of barrels of oil and gas supply since the war closed the Strait of Hormuz, a chokepoint for a fifth of the world’s oil and liquefied natural gas supplies, for more than three months.
According to the International Energy Agency (IEA), more than 14 million barrels per day of oil output is shut, equivalent to about 14 per cent of world demand. It is unclear how quickly those barrels will return to market once the waterway is opened.
E4 nations, which include the United Kingdom, France, Germany and Italy, said on Sunday that the countries were prepared to lift sanctions on Iran in response to steps on its nuclear programme.