Oil prices continued their sharp decline, falling back to levels last seen before the February 28 conflict. This retreat follows last week’s memorandum of understanding between the US and Iran, which includes partial lifting of sanctions on Iranian oil exports.
Some tankers carrying crude, LNG and fertiliser are now passing through the Strait of Hormuz, easing the nearly four-month blockade that had removed massive volumes from the market. Initial signs of normalization, combined with other producers increasing output and infrastructure repairs, have deflated the geopolitical premium.
Analysts note the move is largely sentiment-driven, with markets pricing in reduced supply risks and potential relief at the petrol pumps. However, full recovery remains gradual with a large backlog of over 500 vessels, as well as mine-clearing operations and logistical challenges, thus normal shipping patterns could take at least weeks.
Trade analysis
Short-dated contracts reflect declining volatility as risk premium evaporates, with brackets narrowing from $70–$80.
Bullish ($80 or higher) signals:
- Delays or breakdowns in MoU implementation and Hormuz reopening
- Renewed military incidents or regional escalation
Bearish ($70 or lower) signals:
- Accelerated tanker traffic and full sanctions relief
- Strong supply response from OPEC+ and other producers
The strategy is to fade short-term bounces into $80 aggressively as long as reopening progress continues, and remain cautious on buying dips unless setbacks emerge. Our base case for late June is consolidation with downside risks in the $70 zone.