Crude oil prices have seen a sharp slide intra-day. Both Brent crude and West Texas Intermediate have plunged more than 11% in a single session. Brent crude futures have dropped below the $100/bbl mark trading near the $98/bbl level, while the US benchmark is trading near the $89/bbl level.
Big drop in crude rates
The big drop in oil prices comes over growing prospects in resumption in supplies from the Middle East as reports emerged that US and Iran are inching closer to end the prolonged West Asia conflict.
Trump announces temporary halt of ‘Project Freedom’
US President Donald Trump in a social media post said that Washington would temporarily halt its ‘Project Freedom’, a military operation to escort commercial vessels through the chokepoint- Strait of Hormuz, signalling progress in final negotiations with Tehran.
American media outlet, Axios citing US officials had reported that White House believes it is nearing a one-page memorandum of understanding with Tehran to end the war and lay out a more structured and detailed framework for nuclear talks
Washington expects a response from Tehran within 48 hours, the media outlet said.
“A deal that normalises oil flows through the Strait of Hormuz is crucial,” CNBC quoted, Warren Patterson, head of commodities strategy at Dutch bank ING, said in a research note.
Dual blockade still adds to the worry
A final end to the prolonged West Asia conflict, which began in late February would help provide a much needed price relief to the oil and energy markets, but markets still remain on caution as dual blockade of the crucial trade route- Strait of Hormuz stays on hold.
Next 48 hours to dictate crude prices
“Nonetheless, physical market conditions remain tight. The Strait of Hormuz continues to operate well below normal capacity, with US naval restrictions still limiting flows,” said Kaynat Chainwala, AVP Commodity Research, Kotak Securities.
The analyst adds , “If the MOU is formalised and leads to a durable agreement, a sharp further downside correction in oil prices is likely as bottled-up supply returns to global markets. Any collapse in talks, however, could reverse this week’s decline just as quickly. The next 48 hours may prove decisive.”
Just last week Brent crude prices had surged to the $126/bbl mark, hitting its highest level in over four years as supply disruptions from the waterway passage added to the oil and energy supply disruptions.
“Roughly 13 mb/d of disrupted supply is being largely offset by inventory, which is clearly declining rapidly. This leaves the market more vulnerable with each passing day. Tighter stocks will only leave the oil market trading in an ever more volatile manner,” CNBC quoted Patterson.
Oil prices to slide gradually
According to Norbert Rücker, Head of Economics and Next Generation Research Julius Baer, oil will trade meaningfully lower this year as he says that oil markets have moved past the initial shock reaction and have settled in a regime of deficit absorption by inventory draw.
“There is breathing room to deal with the supply shock beyond summer. Our views are unchanged; the current crisis should follow the historic pattern of a short-lived but intense price shock. Looking much further ahead, some years from now, the strait of Hormuz very likely will have lost some of its strategic importance and economic threat, given the lasting shifts that already occurred in response to the conflict,” the analyst said.