We are observing a real slump in the black gold market today. Commodity quotes are losing value sharply, and the price of OIL (Brent) has broken through the psychological barrier of $80 per barrel, falling to levels not seen since the beginning of March. Simultaneously, American WTI oil (OIL.WTI) is losing nearly 6%, testing the vicinity of $75. The main driver of this sudden sell-off is reports of another breakthrough in negotiations between the US and Iran.
The geopolitical risk premium is rapidly evaporating from the market. What exactly weighed on sentiment and triggered the bulls' capitulation?
- No transition period for Tehran: According to the latest leaks, the Donald Trump administration has agreed to the immediate resumption of Iranian oil sales. The lifting of the American naval blockade is set to happen overnight, flooding the market with new supply. Earlier, Iran reported that the United States is already withdrawing from the vicinity of the Strait of Hormuz.
- Unblocking the Strait of Hormuz: Tanker traffic through this critical transit hub is to be fully restored. The risk of disruptions in global supply chains falls practically to zero. On the other hand, it should be remembered that clearing the Strait of mines itself could take months, so it certainly won't be normal shipping and a return of supply at the level of 20 million barrels per day.
- Wall Street Giants' Reaction: Such a drastic change in fundamentals has caused institutions such as Goldman Sachs, Citi, and Morgan Stanley to already cut their price forecasts for oil for the second half of 2026 and for 2027. Some even point to $70 by the end of this year.
Inverstors' attention is now shifting to Switzerland, where the official signing of the memorandum (MoU) is scheduled to take place this Friday (June 19). Until then, the commodity market may be characterized by extremely high volatility. Breaking the $80 barrier on Brent oil opens a technical path to testing further, lower support levels.
The United States' step in the form of allowing Iran's return to the oil market and the potential unfreezing of funds could lead to the consolidation of a ceasefire and normalcy in terms of oil trade. If the current authorities in Iran get an injection of cash, money may speak louder than convictions. On the other hand, information continues to surface that many issues between the US and Iran have not been resolved, particularly those concerning the atom. Additionally, Israel remains skeptical of the agreement, and its actions could literally torpedo the entire accord.
Brent oil falls below $80 per barrel and tests its lowest levels since March 3rd, which is just 2 days after the market opened following the start of the war in Iran. It is worth mentioning that at that time, we did not yet have the Strait of Hormuz fully closed. Key support is the 200-session average, followed by the vicinity of $73-75 per barrel. Although the market seems extremely optimistic about the agreement at the moment, it should be remembered that the return to normalcy will take months and will require higher prices than currently. Source: xStation5
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