Oil prices turned volatile once again following recent remarks by US Vice President JD Vance, which raised concerns about the durability of the Middle East peace agreement. Brent crude declined by 0.65% to $79.33 per barrel, after briefly touching $79.85. Simultaneously, West Texas Intermediate (WTI) crude dropped 0.46% to $75.50.
Vance's Remarks Spark Uncertainty
The price movement came after Vance cautioned Israel against launching further attacks on Iran-backed Hezbollah in Lebanon, casting doubt on the longevity of the accord. Addressing Israel's criticism of the peace deal, Vance stated, "I guess my response to them would be: What is your exact proposal? You're a country of nine million people. You can't just kill your way out of solving every single national security problem that you have." He further emphasized that Israel should "give a little bit of credit to the United States of America, which I think has been an incredible partner for the Israeli government for a long time."
Recent Price Lows
In earlier trading sessions, Brent crude had fallen to its lowest level since March 2, the first trading day after the initial US-Israeli strikes on Iran. The US benchmark WTI crude also touched its lowest point since March 4.
Focus on Strait of Hormuz
The market is now closely watching the Strait of Hormuz, a critical oil transit route through which 20% of the world's oil flowed before the conflict began. Under a 14-point memorandum of understanding signed by the United States and Iran, Tehran has agreed to allow toll-free passage through the Strait of Hormuz during a 60-day negotiation period. The agreement also aims to restore traffic through the waterway to full capacity within 30 days. The accord is binding on the allies of both countries in the Middle East and specifically applies to Lebanon, where Israel has been conducting air and ground operations against Hezbollah.
Unresolved Issues
However, several key issues remain unresolved under the preliminary agreement, including Iran's nuclear program. The deal also requires the United States and its partners to develop a $300-billion plan to support Iran's recovery.
Analyst Views on Oil Prices
While analysts cited by Reuters expect oil flows through the Strait of Hormuz to recover gradually, industry experts have cautioned that prices may not see a sharp decline as demand rebounds and inventories are replenished. Goldman Sachs anticipates Gulf oil exports to return to pre-war levels by the end of July, with crude production recovering by October. According to the bank, restoring exports to pre-war levels could be achieved through a 13 million barrel-per-day increase in Hormuz flows from current levels, taking them to around 70% of pre-war volumes.
BNP Paribas, on the other hand, does not expect oil prices to return to levels seen before the conflict. In a note, the bank stated that it views $75 per barrel as a "durable floor for the foreseeable future" due to continuing supply losses and stronger demand. Before the war, Brent crude had traded in the $60-$70 per barrel range during the first two months of the year.
Global Supply Pressures
Meanwhile, oil supplies across the globe have remained under pressure since late February, when the US and Israel launched joint strikes on Iran. In retaliation, Iran choked the crucial Strait of Hormuz, squeezing energy supplies and sending ripples to economies worldwide.
