Oil prices continued their decline for a second consecutive trading session on Tuesday, driven by a short-term U.S. waiver on Iranian oil sales and the resumption of tanker traffic through the Strait of Hormuz. These developments have significantly cooled market concerns about supply disruptions.
Market Movements
Brent crude futures, the global benchmark, slipped 44 cents, or 0.6%, to $77.46 per barrel during active European trading at 9:13 a.m. BST. U.S. West Texas Intermediate (WTI) crude dropped 30 cents, or 0.4%, to $73.56 per barrel. This follows Monday's sharp decline, where Brent settled 3.31% lower at $77.90 after hitting an intraday high of $82.30, while the August WTI contract ended down $1.99 at $73.86.
Key Drivers
The U.S. Treasury on Monday issued Iran General License X, authorizing the production, delivery, and sale of Iranian crude, petrochemicals, and petroleum products through August 21. This waiver effectively opens Iranian barrels to a broader set of buyers, alleviating immediate supply fears. Additionally, U.S. and Iranian officials agreed to a 60-day window to work toward a permanent deal following meetings in Switzerland. They also established a communications channel focused on securing commercial shipping through the Strait of Hormuz.
Early shipping data indicates a pickup in traffic through the strategic waterway. Two supertankers, each carrying approximately 2 million barrels of crude that had been stranded, successfully cleared the strait on Tuesday. Furthermore, seven empty LNG carriers associated with Qatar have entered the Gulf in recent weeks, signaling a gradual return to normal operations.
Market Implications
The Strait of Hormuz typically handles about 20% of global oil and LNG supplies, but conflict had shut down traffic for over three months. If traffic remains open, stuck cargoes will return to the market, and shipping and insurance costs are expected to decline. However, analysts caution that the recovery remains fragile. Tamas Varga, an analyst at PVM Oil Associates, noted that ship owners and operators will need assurances that threats from mines have been fully eliminated, and that damaged ports, debris, and congestion could delay a full return.
On the diplomatic front, Iran stated that nuclear issues were not addressed in the first round of talks, while the U.S. reported that Tehran agreed to allow inspectors back. President Donald Trump has warned that military action could resume if Iran disrupts shipping, underscoring the ongoing geopolitical risks.
Outlook
Market participants are now looking ahead to U.S. inventory data due later this week. Analysts expect declines in crude, gasoline, and distillate stocks from last week. The U.S. Strategic Petroleum Reserve currently stands at 331.2 million barrels, its lowest level since June 1983, which could provide additional support for prices if supply concerns re-emerge.
In summary, while the immediate supply fears have eased, the market remains cautious amid fragile recovery and ongoing diplomatic uncertainties.
