West Texas Intermediate (WTI) crude oil closed higher Wednesday, rising off the lowest in more than three months as details of the peace deal between Iran and the United States emerge, while the International Energy Agency sees inventories depleted by the closure of the Strait of Hormuz to return to surplus next year.
WTI oil for July delivery closed up US$0.74 to settle at US$76.79 per barrel, rising off the lowest since March 4, while August Brent oil was last seen up US$0.41 to US$79.37.
Oil markets are settling as the memorandum of understanding reached by the United States and Iran to end their war looks to allow shipping through the Strait of Hormuz, the chokepoint for oil shipment from the Persian Gulf nations that supplied a fifth of daily oil demand.
CNN said it obtained a copy of the deal, reporting the two countries agreed to restore normal shipping through the Strait within 30 days, while Iran will be allowed to resume exporting oil to global markets amid other concessions to Islamic Republic.
"The MoU declares an immediate ceasefire and reopens the Strait of Hormuz, but front-loads concrete economic benefits to Iran - oil export waivers, frozen asset releases, and naval blockade removal - while deferring all hard nuclear questions to a final agreement," Erik Meyersson, chief EM Strategist at SEB Research, wrote.
Since the war began on Feb.28, oil-importing countries have depleted inventories amid the loss of most Persian Gulf supply. In its influential monthly Oil Market Report, the International Energy Agency said global oil inventories fell by an average 3.8-million barrels per day since the start of the conflict, while it expects stocks to fall to record lows in coming months before the market returns to surplus late this year.
The agency said it sees global demand down 1.1-million barrels per day this year, down 700,000 bpd from its May report, with 2026 annual supply down by an average 3.0-million bpd due to closure of the Strait. However the market is expected to return to a significant surplus in 2027, with the IEA seeing demand in the year to rebound by two-million bpd while global production surges.
"Our first look at 2027 balances shows a significant overhang emerging next year. Global oil demand is projected to rise by a relatively modest 2 mb/d to 105.3 mb/d. By contrast, oil supplies look set to surge by around 8 mb/d to 110 mb/d. This may provide a welcome respite to the market and an opportunity to replenish depleted inventories, or to build new strategic reserves," the agency said.