In a crude market commentary piece sent to Rigzone on Monday, Gaik June Goh, a senior oil market analyst at Sparta Commodities, explained today’s oil price drop.
“On late Saturday, there seemed to have been a breakthrough in the U.S.-Iran war,” Goh noted in the commentary piece.
“Trump declares the deal ‘largely negotiated’, with both parties to sign an MoU [Memorandum of Understanding] lasting 60 days, extendable by mutual consent. During that period, the Strait of Hormuz would be open with no tolls, and Iran would agree to clear the mines it deployed in the strait,” Goh added.
“In exchange, the U.S. would lift its blockade on Iranian ports and issue some sanctions waivers allowing Iran to sell oil freely,” Goh continued.
In the commentary, Goh highlighted that, at the point of writing her analysis, there had been no confirmation when this MoU would be signed. Goh outlined, however, that this development “was more than enough to pull front month ICE Brent down five percent at the futures open to slightly below $99 per barrel and [the] July/Aug timespread down 13 percent to $2.9 per barrel”.
“This also demonstrates that Trump is unwilling to escalate the war even with his constant rhetorics in place,” Goh pointed out.
The Sparta analyst went on to warn that, fundamentally, there is no change to the underlying picture where 10 to 11 million barrels per day of crude oil continue to be shut-in for every day the Strait of Hormuz remains shut.
“However, markets are expecting a gush of 100 million barrels of crude oil from the stranded ships to flow out once the deal is in place,” Goh said.
“This will put an immediate damper on prompt flatprice, timespreads (as they have) and FOB diffs,” Goh added.
Goh warned in the crude commentary, however, that there will be a “chronic unease of ‘what’s next?’ to the deal process”.
“Will the flows normalize quickly? Sparta estimates still about three to six months required to get everything back to status quo (including time to bring production back online), so margins are expected to remain strong as refined products would be constrained by feedstock availability into the refining kits after that first onslaught of cargoes exiting the SoH clears,” Goh noted.
In a market analysis sent to Rigzone today, Samer Hasn, Senior Market Analyst at XS.com, outlined that West Texas Intermediate futures were dropping “sharply” and that ICE Brent futures were experiencing an “even steeper decline”.
“The decline in oil prices comes amid hope that a deal to end the war in the Middle East between the United States and Iran is nearing completion,” Hasn said in the analysis.
“However, details revealed by reports about the potential substance of this agreement suggest that it could be fragile, just like previous agreements or negotiation rounds, which could lead to a renewed rise in oil prices,” he warned.
Hasn highlighted in the analysis that XS.com has previously mentioned that any agreement that does not clearly stipulate the dismantling of Iran’s nuclear program, its ballistic missile program, or even its drone program will be pointless.
“This is especially true because it contradicts the security interests of Israel and would also represent a defeat for the United States,” Hasn said.
“Indeed, this agreement has already triggered a wave of widespread criticism from hawkish Republicans, war supporters, and even traditional political opponents among the Democrats,” he added.
“I foresee a short-term possibility of renewed fighting or at least maintaining the current state of no peace and no war for an extended period,” Hasn warned.
“This scenario would keep the Strait largely closed to oil tanker traffic and support the continued rise in oil prices for a significant duration,” he noted.
Hasn revealed in the analysis that, the most optimistic scenario, in his view, is that Trump “will try to force this agreement on all parties in the region and then withdraw, preparing to pursue strategic victories elsewhere”.
In a statement posted on his Truth Social page on May 23, U.S. President Donald Trump said, “We just had a very good call with President Mohammed bin Salman Al Saud, of Saudi Arabia, Mohammed bin Zayed Al Nahyan, of The United Arab Emirates, Emir Tamim bin Hamad bin Khalifa Al Thani, Prime Minister Mohammed bin Abdulrahman bin Jassim bin Jaber Al Thani, and Minister Ali al-Thawadi, of Qatar, Field Marshal Syed Asim Munir Ahmed Shah, of Pakistan, President Recep Tayyip Erdoğan, of Türkiye, President Abdel Fattah El-Sisi, of Egypt, King Abdullah II, of Jordan, and King Hamad bin Isa Al Khalifa, of Bahrain, concerning the Islamic Republic of Iran, and all things related to a Memorandum of Understanding pertaining to PEACE”.
“An Agreement has been largely negotiated, subject to finalization between the United States of America, the Islamic Republic of Iran, and the various other Countries, as listed,” he added.
“Separately, I had a call with Prime Minister Bibi Netanyahu, of Israel, which, likewise, went very well. Final aspects and details of the Deal are currently being discussed, and will be announced shortly. In addition to many other elements of the Agreement, the Strait of Hormuz will be opened,” he continued.
In a follow up statement posted on his Truth Social page on May 24, Trump said, “the negotiations are proceeding in an orderly and constructive manner, and I have informed my representatives not to rush into a deal in that time is on our side”.
“The Blockade will remain in full force and effect until an agreement is reached, certified, and signed. Both sides must take their time and get it right. There can be no mistakes! Our relationship with Iran is becoming a much more professional and productive one. They must understand, however, that they cannot develop or procure a Nuclear Weapon or Bomb,” he added.
“I would like to thank, thus far, all of the countries of the Middle East for their support and cooperation, which will be further enhanced and strengthened by their joining the Nations of the historic Abraham Accords and, who knows, perhaps the Islamic Republic of Iran would like to join, as well!,” he continued.
In another statement posted on Truth Social on May 24, Trump said, “If I make a deal with Iran, it will be a good and proper one”.
“Nobody has seen it [our deal] or knows what it is. It isn’t even fully negotiated yet. So don’t listen to the losers, who are critical about something they know nothing about,” he added.
In a statement posted on his X page on May 20, Masoud Pezeshkian, the President of Iran, said, “Iran has consistently honored its commitments and explored every avenue to avert war; all paths remain open from our side”.
“Forcing Iran to surrender through coercion is nothing but an illusion. Mutual respect in diplomacy is far wiser, safer, and more sustainable than war,” he added.
Rigzone has contacted the White House and the Iranian Ministry of Foreign Affairs for comment on the Goh and Hasn’s statements. Rigzone has also contacted the Iranian ministry for comment on Trump’s Truth Social posts and the White House for comment on Pezeshkian’s X post. At the time of writing, neither have responded to Rigzone.
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