The rally in crude prices triggered by the closure of the Strait of Hormuz has largely unwound after a preliminary agreement between the US and Iran raised hopes that the strategic waterway could soon reopen, Wood Mackenzie strategists said in a note on Monday.
Brent crude, which had surged amid fears of prolonged supply disruptions, has dropped in recent weeks as markets price in a relatively benign outcome following the signing of a memorandum of understanding between Washington and Tehran.
"Brent has been to the sky and back in less than three months," the analysts said.
The agreement, signed last week, establishes a framework for negotiations over the next 60 days and includes commitments from both sides to reopen the Hormuz, through which about a fifth of global oil consumption passes.
"Prolonged closure would lead to an exponential rise above US$150/bbl in the coming months; the prospect of reopening has burst that bubble," Wood Mackenzie analysts Alan Gelder and Andrew Harbourne said, noting that investor positioning for higher Brent prices had fallen by about 80% from a five-year high in the four weeks to June 16.
The easing in prices comes despite little additional oil having returned to the market yet. The latest data from Wood Mackenzie indicate that shipping traffic via the Strait remains well below pre-war levels, though daily vessel movements rose to 35 on June 18.
However, negotiations remain fraught with uncertainty. The US hopes the Hormuz can be reopened within two to four weeks, while Iranian state media has indicated transit would resume under conditions set by Tehran.
Wood Mackenzie analysts said that talks could be extended or even fail, noting that any future transit arrangements may differ from the unrestricted flows that existed before the conflict.
The consultancy said tight oil market fundamentals had played a key role in bringing the two sides to the negotiating table. Over 11 million barrels per day of crude production and 3 million b/d of refining capacity had been disrupted, forcing heavy drawdowns of commercial inventories and strategic reserves.
US crude inventories at the Cushing, Oklahoma, delivery hub had approached operational minimum levels, as President Trump acknowledged on June 15 that strategic reserves could be exhausted within weeks if disruptions persisted.
Wood Mackenzie said that had the closure been prolonged, Brent prices could have risen above $150 per barrel.
The consultancy, instead, expects prices to trend lower over the next 18 months, forecasting Brent to average $92/bbl in 2026 and $78/bbl in 2027, assuming transit via the chokepoint normalizes by August.
Brent is projected to be about $70/bbl by Q4 2027, though the path lower is expected to be volatile as recovering demand, inventory replenishment, and supply growth move out of sync.
Despite expectations that the Hormuz will open, a full recovery in Gulf energy flows is expected to take months. Wood Mackenzie projects that about 70% of the over 11 million b/d of shut-in production could return within three months, rising to 90% within six months.