Overview
Oil futures continued to soften on Thursday as traffic through the Strait of Hormuz resumed and tankers that had been stranded began to move out of the choke point. Prompt-month Brent crude for August delivery eased by 40 cents, or 0.54%, to $73.34 a barrel at 0004 GMT. U.S. West Texas Intermediate for August lost 27 cents, or 0.38%, settling at $70.07 a barrel.
Supply signal and market reaction
Short-term supply conditions appeared to loosen as August Brent traded below September futures, which were quoted at $73.59, a structure market participants interpret as an indicator of adequate near-term availability. Analysts noted the speed of the price correction. "The speed of this decline has caught plenty off guard as markets price in a much faster return of Middle Eastern barrels than most had anticipated just a fortnight ago," said IG analyst Tony Sycamore.
Prices had already moved sharply lower on Wednesday, with Brent down by more than $3 and WTI ending the session nearly $3 lower, as traders shifted attention from inventory prints to the re-opening of a strategic shipping lane.
Operational developments in the Strait
U.S. Energy Secretary Chris Wright reported at a forum that flows through the Strait of Hormuz were close to pre-war levels, noting that at least 20 million barrels had exited the strait in the previous 24 hours. He cautioned, however, that a full return to normalcy would take several weeks because the strait must be demined before all restrictions can be lifted.
The restart of traffic follows an initial accord reached last week to end the U.S.-Israeli war with Iran, a conflict that began on February 28. That agreement has also created a 60-day window for negotiations on more complex issues, including Iran's nuclear program.
Operational measures by regional authorities have supported the movement of vessels. Oman opened temporary routes designed to ease tanker departures, coordinating movements with the International Maritime Organization and Omani authorities. Separately, Qatar's prime minister visited Oman to discuss initiating talks on future management of the strait with Iran, Iraq and Gulf states.
Inventory context and market focus
Separately, U.S. total crude stocks fell to their lowest level since 1984 last week, the Energy Information Administration said on Wednesday, reflecting strong refining demand and releases from the government's emergency reserve. Despite the low inventory reading, markets seemed to place greater emphasis on the reopening of the Strait of Hormuz when pricing oil.
Outlook and immediate considerations
For now, the combination of resumed tanker movements and the initial diplomatic accord has eased immediate supply fears and pressured futures lower. However, the pace of demining, the outcome of the 60-day negotiations and the coordination of regional shipping routes are variables that market participants will continue to monitor closely.