Oil Traders Pin Hopes on US-Iran Deal Despite Worsening Odds

Oil traders are doubling down on their bet that a US-Iran deal will reopen the Strait of Hormuz, despite worsening odds. Global crude prices have fallen back to $80 a barrel, with Brent crude oil tumbling from its recent high of roughly $100 a barrel on July 23. The emerging deal is likely to centre on an agreement between Iran and Oman to establish designated safe shipping lanes through the strait.

The global energy market is now far more precarious than it was in June, when traders expected a flood of crude to exit the Gulf following the ceasefire. However, this time, unfettered transit appears far from guaranteed. Only around 80 million barrels of oil remain stored inside the Gulf, meaning any 'flood' following a reopening will be considerably smaller.

The supply backdrop has also changed dramatically. The structure of the Brent futures curve indicates that immediate supply tightness is expected rather than a short-term glut. Inventories are also in a more vulnerable position today, with market buffers, which were already slim in June, having shrunk further due to the prolonged disruption at Hormuz.