Oil Prices Drop as US-Iran Agreement Raises Prospects of Increased Supply

Oil prices fell sharply on Thursday after the United States and Iran signed an interim agreement aimed at ending the conflict between the two countries, reopening the Strait of Hormuz and easing restrictions on Iranian oil exports, boosting expectations of higher global supply.

Brent crude futures dropped $2.14, or 2.69 percent, to $77.41 a barrel by 09:16 a.m. Saudi time, while US West Texas Intermediate crude fell $2.36, or 3.07 percent, to $74.43 a barrel.

The declines pushed Brent to its lowest level since early March, shortly after military operations involving the United States and Israel against Iran began. WTI also touched its weakest level since the first week of March.

The latest losses extended a broader downward trend in oil markets that has emerged as traders assess the implications of the US-Iran agreement. Prices had briefly moved higher on Wednesday after US President Donald Trump warned that military action could resume if Iran failed to comply with the terms of the deal. However, those gains quickly faded as investors focused on the prospect of additional oil reaching global markets.

Market analysts said traders are increasingly pricing in a faster return of Iranian crude exports following the signing of the memorandum of understanding between Washington and Tehran.

The 14-point agreement launches a 60-day negotiation period and includes provisions for toll-free passage through the Strait of Hormuz, one of the world’s most important energy shipping routes. The deal also aims to restore maritime traffic through the strait to full capacity within 30 days.

While the agreement addresses immediate concerns over shipping and oil flows, several major issues remain unresolved. Negotiations on Iran’s nuclear program are expected to continue during the coming months. The accord also calls for the United States and its partners to develop a $300 billion recovery plan for Iran.

Despite the recent drop in prices, analysts believe the pace of future declines may be limited. Some Iranian oil exports continued through alternative arrangements during the conflict, reducing the volume of supply expected to return immediately. Concerns also remain about the durability of the agreement, with shipping companies and tanker operators likely to remain cautious until stability is fully restored.

Industry experts noted that oil demand could recover faster than supply in the short term, helping support prices above pre-conflict levels.

The International Energy Agency warned this week that if the agreement is successfully implemented and Middle Eastern exports normalize, the market could shift from supply shortages to a substantial surplus in 2027. The agency forecasts global oil supply could exceed demand by more than 5 million barrels per day next year.

Oil markets also faced pressure from expectations that the US Federal Reserve could raise interest rates later this year to tackle inflation. Higher borrowing costs could slow economic activity and reduce fuel demand, adding another factor weighing on crude prices.