Brent Oil Drops Below $90 as the U.S. Closes in on a Peace Deal With Iran. What it Means for Oil Stocks.
Written by Matt DiLallo for The Motley Fool -> The U.S. and Iran reportedly could sign a peace deal in the next few days. It would reopen the Strait of Hormuz to oil tanker traffic. The oil market still faces a long road to recovery, which could keep crude prices elevated into
The U.S. and Iran reportedly could sign a peace deal in the next few days.
The oil market still faces a long road to recovery, which could keep crude prices elevated into 2027.
The price of Brent oil, the global benchmark, slumped nearly 4% on Friday, closing at $86.88 per barrel. At one point, Brent touched its lowest point since early March. It fell 7.7% for the week, which is the third weekly decline in the past four weeks.
Driving the decline were reports that the U.S. and Iran are closing in on a peace deal that could be signed in the next few days. The reported deal would, among other things, fully reopen the Strait of Hormuz to ship traffic. Here’s what it would mean for oil stocks .
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Iran has effectively closed the Strait of Hormuz since the U.S. and Israel launched military attacks against the country more than three months ago. Before the war, 20% of global oil supplies moved through the narrow waterway each day. That has fallen to a trickle, though recent reports suggest that oil has been quietly escaping the Persian Gulf . In addition to those flows, Saudi Arabia and the UAE have ramped up volumes on bypass pipelines.
However, despite those workarounds, demand has significantly outpaced supply, causing the global economy to burn through oil inventory and emergency stockpiles. According to some estimates, the world has lost over 1 billion barrels of supply since the war began. It will take the oil industry time to recover from this massive supply shortfall. Persian Gulf countries need to restart the oil wells they shut in due to the war, which could take several months. Meanwhile, the economy will need to rebuild inventory levels and emergency stockpiles to cushion the blow of a future supply crisis.
As a result, oil prices will likely remain elevated long after the Strait of Hormuz fully reopens to tanker traffic. For example, Goldman Sachs expects Brent will average $90 a barrel in the fourth quarter of this year and $80 a barrel next year as the oil market recovers.
