Key Takeaways:
Brent crude dropped below $90 a barrel for the first time in weeks as the US signaled a breakthrough in talks to reopen the Strait of Hormuz.
Brent crude tumbled 4.8% to $89.73 a barrel Tuesday after US Energy Secretary Chris Wright said ship traffic through the Strait of Hormuz is rising "very meaningfully," as the months-long blockade that disrupted about 20% of global oil supply appeared to be easing.
"I would say rising very meaningfully," Wright said at an Atlantic Council conference, adding that it would take many months to restore normal energy flows once the war ends.
The comments follow President Donald Trump's claim that a US-Iran agreement to reopen the strait is "two to three days" away, after Israel and Iran both declared a ceasefire following violent clashes that briefly pushed oil prices higher Monday.
The strait handled about 20% of global oil supply and one-fifth of liquefied natural gas trade before US and Israeli strikes on Iran in late February largely blocked vessel movements. A full reopening would release millions of barrels of daily supply into a market where Brent has traded above $90 for months, but Wright cautioned that normal flows remain months away even after a deal.
JPMorgan sees more oil moving than reported
JPMorgan analysts estimate that as much as 2 million barrels a day of crude and petroleum products may already be transiting the strait on vessels with transponders turned off, according to a June 4 report. "Despite the ongoing naval blockade and sharply reduced commercial traffic, a surprising amount of crude appears to be getting through," the analysts wrote.
The bank's estimate suggests actual supply disruption may be less severe than headline figures imply, potentially capping the upside for prices even as the broader market remains on edge.
Political stakes rise ahead of midterms
The disruption has triggered a surge in global energy prices, upending economies worldwide and creating a political vulnerability for Trump and his Republican party ahead of November midterm elections. Washington has been pressing for a peace deal with Tehran that would include a full reopening of the strait.
Oil industry executives and analysts caution that while global inventories have provided a buffer against the supply losses, those stockpiles are being drawn down rapidly. With summer demand approaching its seasonal peak, prices could spike sharply later this year if the deal collapses or violence resumes.
This article is for informational purposes only and does not constitute investment advice.
