News Screen – World oil prices weakened again on Thursday after the United States and Iran signed an agreement ending their long-standing conflict and reopening the Strait of Hormuz, a vital shipping lane for global energy trade.
The agreement sparked optimism in international markets because it has the potential to restore stability to world oil supplies after months of disruption due to conflict in the Middle East region.
United States President Donald Trump announced that a memorandum of understanding had been signed following a high-level meeting at Versailles. Meanwhile, the spokesperson for the Iranian Foreign Ministry, Esmaeil Baqaei, stated that the agreement document had been officially ratified by the two heads of state.
Also Read: US and Iran Agree on Peace, Strait of Hormuz Prepares to Reopen
The reopening of the Strait of Hormuz is a key point in the agreement. This strategic route, through which around a fifth of the world’s oil supply passes, was disrupted following the escalation of tensions between Iran, the United States and Israel since the end of February.
In the agreement, Washington is said to be lifting a number of sanctions related to Iran’s oil sector and supporting reconstruction funding. In return, Tehran committed to reducing uranium enrichment levels while continuing discussions on a long-term agreement.
This positive sentiment was immediately reflected in the energy market. The price of West Texas Intermediate (WTI) crude oil fell 1.7 percent to 75.47 US dollars per barrel, while Brent crude oil fell 1.4 percent to 78.42 US dollars per barrel.
This decline extends the downward trend in oil prices in recent days. Since news of peace negotiations began circulating last week, the world’s two benchmark oil contracts have lost more than 15 percent of their value.
SPI Asset Management analyst, Stephen Innes, assesses that the reopening of the Strait of Hormuz reduces the risk premium that previously weighed on oil prices due to concerns about supply disruptions from the Gulf region.
However, energy market optimism has not fully spread to global stock markets. Investors are still paying close attention to the direction of Federal Reserve (The Fed) policy after the United States central bank maintained its benchmark interest rate, but has opened up the opportunity for further policy tightening in the coming months.
The Chair of the Fed, Kevin Warsh, emphasized that controlling inflation remains a top priority. According to him, the high prices of goods and services are still a burden for the people of the United States so price stability must continue to be maintained.
This statement raised concerns that interest rates could be raised again if inflationary pressures have not subsided. This condition makes movements in Asian and global stock exchanges tend to vary.
In the Asian region, Tokyo’s Nikkei 225 index rose 1.7 percent. In contrast, Hong Kong’s Hang Seng Index fell 1.7 percent and the Shanghai index fell 0.1 percent.
Market players are now waiting for the implementation of the US-Iran agreement as well as developments in United States monetary policy which are expected to be the main factors driving global energy and financial markets in the next few months.***
