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Oil Trading at a Month Low on Expectations the War on Iran is Nearing an End

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Oil traded lower for a second session early on Wednesday on expectations the United States and Iran will reach a deal to reopen the Strait of Hormuz and end the largest-ever energy supply shock.

West Texas Intermediate crude oil for July delivery was last seen down US$3.29 to US$90.60 per barrel, the lowest since April 20, while July Brent oil was down US$2.66 to US$96.92.

The drop comes as United States and Iran continue negotiations to end their war and reopen the crucial waterway that is the chokepoint for the 20% of daily oil supply from Persian Gulf nations that has been closed since the Feb. 28 start to the war.

Talks between the two countries are continuing in Qatar. While U.S. President Trump has repeatedly said a deal is near, The Guardian reported Iran is unwilling to agree to a deal that does not meet all its conditions. The paper said Iran has also launched talks with Oman on future regulations for ships transiting the Strait, which had been an international waterway prior to Iran's blockade.

Though oil prices have retreated from April highs above US$110 per barrel, there is little expectations prices will quickly return to pre-war levels as importers look to rebuild inventories.

"Even if a deal is reached, market normalization is likely to take months, with ongoing demand for replacement barrels and depleted inventories potentially leading to a higher price floor than the one seen before the war," Saxo Bank noted.

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