Key Takeaways:
The reopening of the Strait of Hormuz is reshaping the oil market's supply calculus, with Morgan Stanley slashing its Brent forecasts by as much as $15 a barrel.
Morgan Stanley cut its Brent crude forecasts by as much as $15 a barrel after the US and Iran reached a deal to reopen the Strait of Hormuz, a waterway that handles about a fifth of the world's oil supply.
"The overall direction is toward de-escalation of conflict and increased oil exports through the Strait of Hormuz," the bank's analysts wrote in a note, though they cautioned that key risks remain.
The bank now expects Brent to average $90 a barrel in the third quarter, down from a prior estimate of $100, and $80 in the fourth quarter, compared with an earlier forecast of $95. International oil prices were softer Monday, with Brent crude down 0.3% at $82.90 a barrel and WTI falling 0.1% to $80.65.
The agreement, announced Sunday by President Donald Trump and confirmed by Iranian state media, ends competing blockades of the strait and sets the stage for negotiations on Iran's nuclear program. For energy markets, the deal removes a supply risk that had kept a geopolitical premium baked into prices since the conflict erupted.
Restoring production will take months
Restoring output will first require clearing export storage tanks, meaning the speed at which empty tankers enter the Persian Gulf could be more important than the pace at which fully loaded tankers depart, Morgan Stanley said. Oil production is expected to gradually increase from mid-July, with 50% of lost output restored by September, 80% by December and the remainder in early 2027.
Iran shut the Strait of Hormuz shortly after bombardments by the US and Israel triggered a broader conflict, disrupting the conduit for what's typically a fifth of the world's supply of oil and liquefied natural gas. Crossings remain a small fraction of prewar levels. A ceasefire came into force in early April, followed by weeks of indirect negotiations between Washington and Tehran.
What remains unresolved
Neither side has released the full text of the agreement, though Iran's Deputy Foreign Minister Kazem Gharibabadi said the memorandum of understanding will be published after the official signing scheduled for June 19. The broad contours include an end to competing blockades, a mutual non-aggression pledge and the start of nuclear negotiations. Iran would receive relief from sanctions targeting its overseas oil sales.
Still, crucial questions remain. Israel's Prime Minister Benjamin Netanyahu jeopardized the signing at the last minute with new attacks on Lebanon, and the financial incentives for Iran remain unclear. Tehran has demanded access to billions of dollars in funds frozen in overseas bank accounts as well as long-term relief from sanctions.
The deal will help dispel fears of an immediate return to a conflict that wreaked havoc on global energy markets and raised risks of an inflationary wave. For oil producers that had been banking on sustained triple-digit Brent, the downward revision in price forecasts points to potential margin compression. Energy-intensive industries including airlines, shipping and petrochemicals stand to benefit from cheaper crude.
This article is for informational purposes only and does not constitute investment advice.
