Oil Prices Drop On Possible US-Iran Hormuz Opening Deal

Global oil market shifted on the positive note over reports that the U.S. and Iran may be nearing a deal that could reopen the Strait of Hormuz and ease one of the biggest supply disruptions in recent memory.

On the strength of the report oil price fell below $100 a barrel and natural gas equally slumped.

Brent dropped as much as 12 per cent to $96.75/bbl in London, while WTI fell 13 per cent, European natural gas prices also dropped sharply.

According to a person familiar with the matter, Washington has presented Iran with a one-page memorandum of understanding that, if accepted, would lead to a gradual reopening of Hormuz and a lifting of the U.S. blockade on Iranian ports, Worldoil.com reports.

No agreement has been reached, and more detailed negotiations on Iran’s nuclear program would come later, the person said.

The report of a possible breakthrough came as pressure grows on the Trump administration to bring the nearly 10-week conflict to an end. China also urged renewed negotiations, while Pakistan continues to mediate between Washington and Tehran.

Prices later pared some losses after President Donald Trump warned in a Truth Social post that if Iran does not agree, “the bombing starts.” Iran is expected to respond to the proposal within two days through Pakistan, according to the person.

“The oil price is reacting on shift in sentiment instead of market balances, driven by news of a potential deal between the U.S. and Iran,” said UBS analyst Giovanni Staunovo. “It remains unclear when flow through the strait would resume.”

Crude had climbed about 40 per cent since the conflict began in late February, as the closure of Hormuz cut off hundreds of millions of barrels of Persian Gulf oil from global markets. The disruption has also choked off about one-fifth of global LNG supply.

Even if an agreement is reached, a full market recovery is expected to take time. “When the Strait opens we do believe it will take half a year for oil to get back to normal,” Equinor CFO Torgrim Reitan said. “For gas, it will take much longer.”

At midday in London, Brent was down 7.8 per cent at $101.30/bbl, WTI had fallen 8.4 per cent to $93.67/bbl, and European gas futures were down 8.1 per cent.