Oil Prices Continue to Fall
Oil prices are declining after the US and Iran signed a ceasefire agreement, which includes unblocking the Strait of Hormuz, a key oil shipping route.
Global oil prices extended their decline on June 18, with benchmark Brent crude falling to $78 per barrel and US West Texas Intermediate (WTI) dropping to $75 per barrel. That is about one dollar less than the previous day.
Prices had surged in spring after the US and Israel launched strikes on Iran in late February. In response, Iran blocked the Strait of Hormuz, through which up to 20% of the world's oil and liquefied natural gas is transported.
This week, the US and Iran signed a memorandum to end hostilities and reopen the strait. However, according to The Wall Street Journal, full restoration of oil shipments through the Strait of Hormuz could take months.
Global oil production has fallen by almost 3.9 million barrels per day this year as a large portion of Persian Gulf oil has been kept off the market. Oil inventories have been rapidly depleting; the International Energy Agency (IEA) reports that OECD strategic reserves have dropped to their lowest level since 1990.
The IEA predicts the crisis in the Persian Gulf will significantly reduce oil consumption this year. However, normalization of the Strait of Hormuz could lead to a supply glut by 2027, which might further push down oil prices.
