Hope rises on Hormuz, but oil price stability remains shaky

The international oil market tumbled at the weekend as U.S.-Iran peace negotiations gain momentum. As at the time of going to press last night, words were still being awaited of the signing of a peace deal between the U.S and Iran to end the war- a position the U.S President, Donald Trump, had maintained would happen and lead to the full reopening of the Strait of Hormuz.

But experts caution that a return to pre-war oil price levels remains a distant prospect. The reopening of the Strait of Hormuz, experts say, does not, in itself, signal an immediate normalisation of energy supplies.
Still, forecasts for oil are split, with Goldman Sachs lowering its 2027 Brent crude outlook to $80 per barrel, while ING warns prices could spike to $120–$130 if supply disruptions persist.
Biggo.com news, quoting the Seoul Economic Daily’s energy series “Petro-Electro” and Reuters, noted that the market’s primary focus is now on whether the so-called “Islamabad Declaration”—a memorandum of understanding (MOU) to end hostilities between the U.S. and Iran—will be signed.

Reuters reported that the two nations have agreed to reopen the Strait of Hormuz within 30 days in exchange for releasing billions of dollars in frozen Iranian assets and waiving sanctions on Iranian crude exports. Negotiations over Iran’s nuclear programme are also slated to proceed for 60 days following the cessation of hostilities.

Based on these, Brent crude futures fell $3.05, or 3.37 per cent to settle at $87.33 per barrel, marking their lowest level since early March. West Texas Intermediate (WTI) also dropped $2.83 or 3.23 per cent to $84.88 per barrel, its weakest since April 17.

However, reopening the strait does not equate to a full restoration of Middle Eastern energy flows. A severe bottleneck is inevitable as hundreds of vessels currently stranded in the Persian Gulf attempt to transit the narrow waterway simultaneously.

Javier Blas, an energy columnist for Bloomberg, noted: “We will see the simultaneous effort to evacuate trapped tankers while new vessels attempt to enter. There is no precedent for this, and no playbook exists.”
The recovery on the production side is also proving sluggish. Kuwait Petroleum Corporation estimates it will take six to eight weeks to restore roughly 70% of crude output after the strait reopens, with an additional month needed to bring the remaining 30% back online. As supply recovers only gradually, the extent of any oil price decline will be inherently capped.

A sharp drawdown in global petroleum inventories is another factor underpinning prices. According to the International Energy Agency (IEA), global oil stockpiles fell by 250 million barrels between February—when the conflict began—and May. Once peace is restored, efforts by governments and refiners to replenish strategic and commercial reserves are expected to generate additional demand, further limiting downside for crude.
Conversely, significant downward pressures on oil prices remain formidable. Just before the war, the dominant concern in global crude markets was oversupply. With non-OPEC producers such as the United States, Brazil, and Canada already poised to increase output, the United Arab Emirates’ (UAE) withdrawal from OPEC has amplified the potential for a supply surge. The UAE has long chafed under production quotas, and any unilateral move to boost output could intensify the glut.

On the demand side, China’s slowing oil consumption is particularly pronounced. In May, China’s average daily crude imports fell to 7.8 million barrels, down more than 3 million barrels from the roughly 11 million barrels per day maintained in recent years. The structural shift in energy consumption—driven by the expansion of electric vehicles and increased use of petrochemical feedstocks—is cited as the root cause.

Major institutions are also diverging in their oil price outlooks. Goldman Sachs has lowered its 2027 average Brent crude forecast to $80 per barrel, reflecting rising supply and weakening demand. OPEC, meanwhile, cut its 2026 global oil demand growth estimate from 1.17 million barrels per day to 970,000 barrels, but left the door open to a demand recovery by projecting an increase of 1.73 million barrels per day in 2027. ING analysts warned that “if Middle Eastern crude supply is not restored by the end of July, inventory levels and seasonal demand increases could send oil prices soaring to $120–$130 per barrel.”

Saadé, CEO of French shipping giant CMA CGM, told the French parliament that “even if a peaceful solution is reached in the coming weeks, there is no guarantee that another crisis will not erupt,” underscoring the persistence of geopolitical uncertainty. Indeed, Iran has indicated that terms could change before the MOU is signed and has firmly stated that its missile program will be excluded from negotiations.
Ultimately, even if peace materializes, international oil prices appear set to navigate a complex path toward a new equilibrium—one shaped by the interplay of shipping bottlenecks, delayed production restarts, lingering Middle Eastern tensions, and shifting global demand patterns.

….Culled from Biggo.com