Oil prices were under pressure in early Asian trade on Thursday following the announcement of a ceasefire agreement between Israel and Lebanon. The agreement could ultimately help clear the way for a broader U.S.-Iran deal, which would eventually see the Strait of Hormuz reopen and provide some relief for an increasingly tight oil market.
At the time of writing, Brent crude was trading at $96.60 per barrel, down 1.24% on the session, while West Texas Intermediate was down 1.10% at $94.96.
The latest pullback follows a sharp rally at the start of this week that saw both benchmarks gain more than 5% after rumors of an imminent peace deal fell apart and military strikes restarted.
The latest announcement of a U.S.-brokered ceasefire agreement between Israel and Lebanon has revived hopes that a broader breakthrough could be nearing. Under the agreement, Hezbollah would withdraw its fighters from southern Lebanon and halt attacks on Israel, while Israel and the Lebanese government work toward broader security arrangements. The statement emphasizes that “the Lebanese Armed Forces will take exclusive control of the territory to the exclusion of all non-state actors.”
While the deal reduces the risk of an immediate escalation in the regional conflict, markets are likely to remain skeptical of an agreement that tangibly alters the situation in the Strait of Hormuz. A previous U.S.-brokered ceasefire announced in April failed to stop fighting, and exchanges of fire continued on Wednesday despite the latest diplomatic push.
Meanwhile, in Washington, the House of Representatives approved a resolution seeking to limit President Trump’s authority to continue military operations against Iran without congressional approval. While the measure may struggle to pass the Senate and then would likely be vetoed by Trump, it is another sign of political pressure mounting on Trump at home.
Trump also suggested on Wednesday that negotiations with Iran could show progress as soon as this weekend.
Iranian Foreign Minister Abbas Araqchi struck a more cautious tone, saying Tehran and Washington were studying the texts that had been exchanged but did not suggest any meaningful progress had occurred.
While geopolitical catalysts continue to wreak havoc on oil markets, the fundamental signals have remained consistent, with Wednesday’s EIA report showing that commercial crude inventories fell by 8 million barrels during the week ending May 29, reducing stockpiles to 433.7 million barrels.
Despite all the noise in oil markets over the last few months, the fundamentals of the situation remain unchanged. With every day that passes without the Strait being reopened, the buffers that protect markets from major price spikes are wearing away. A peace agreement and the immediate reopening of the Strait will provide some relief, but it remains to be seen exactly how long oil markets will take to recover from the long-term damage.
By Josh Owens for Oilprice.com
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