Oil prices plummeted to their lowest levels since March on Friday, falling over 3% as former US President Donald Trump hinted at a pending peace deal between Washington and Tehran. The Brent crude benchmark, which had been trading at approximately $93 per barrel in the overnight session, dropped to around $87.50, with some brief dips below $85. This significant decline marks a shift from the previous day's highs of over $113 a barrel, set against the backdrop of US-Iranian tensions and disruptions to oil shipments through the Strait of Hormuz.
Trump's claim that progress in negotiations had prompted him to call off further military strikes against Iran sparked optimism that a deal could be reached soon. Tehran confirmed that substantial parts of an agreement were finalised, but noted that a definitive decision had not yet been made. PVM Oil Associates' analyst Tamas Varga attributed the market's reaction to "headline-driven sentiment" and growing confidence in a US-Iranian accord.
The current slump brings oil prices down to levels seen before Iran effectively suspended oil and gas shipments from the Gulf in March, in response to US-Israeli strikes on Tehran. This development had propelled Brent crude to highs of $113 a barrel. The International Energy Agency subsequently coordinated the release of 400 million barrels of emergency crude to stabilise the market, which was trading at approximately $70 per barrel before the escalation.
Rebalancing factors in the oil market have contributed to the downward trend in recent weeks, including reduced import demand from China and clandestine crude exports from the Gulf via 'dark transits'. IG's Chief Market Analyst Chris Beauchamp noted that an agreement re-opening Hormuz would provide a significant boost to stock markets showing signs of fatigue. European markets followed Asian gains on Friday.
Despite the latest developments, Goldman Sachs has maintained its forecast for oil prices averaging $90 per barrel in Q4 2023, anticipating normalisation of oil flows from August and replenishment of depleted stockpiles. However, it has revised its 2027 price forecast downwards to $80 per barrel, attributing this to increased supplies from the Americas and the UAE, as well as lower expected demand.
The UK Foreign Office has yet to make any official comments on the situation, with the market awaiting further clarification on the US-Iran deal's specifics and official signing.