Oil prices fall on US-Iran deal but full recovery remains distant

A deal in outline, not yet in detail

The US and Iran announced on 14 June that a preliminary agreement had been reached to end a conflict now in its fourth month. A formal signing ceremony is scheduled for 19 June in Switzerland. President Trump declared the Strait of Hormuz open to toll-free passage and authorised the removal of the US naval blockade of Iranian ports.

Critical details remain unpublished. According to a senior Iranian official cited by Reuters, the draft memorandum includes the immediate reopening of the strait, a US waiver on Iranian oil sanctions for a specified period, and the release of US$25 billion in frozen assets. Vice President Vance has described "a very significant sanctions relief package" and indicated access to a broader Gulf-funded reconstruction facility contingent on Iranian compliance.

On nuclear matters, the memorandum reportedly initiates 60 days of negotiations. The central unresolved question is whether Iran will formally commit to relinquishing its nuclear weapons capability — the US has stated this as a core requirement.

The market's learned scepticism: a history of false starts

Oil markets have been conditioned by a number of false starts. The Israel-Lebanon ceasefire briefly prompted Iran's foreign minister to announce on 17 April that the strait was fully open to commercial traffic — a statement that sent West Texas Intermediate (WTI) crude down approximately 11% on the day. Within 24 hours, Iran reversed course; Islamic Revolutionary Guard Corps (IRGC) gunboats attacked a merchant vessel attempting transit, and the waterway reverted to effective closure.

Since the peace deal announcement on 14 June, WTI crude oil and Brent crude oil both fell over 5% to around $80 and $83 per barrel respectively — their lowest levels since 10 March. Prices nonetheless remain more than 20% above pre-war levels. Unlike a fear-driven risk premium that unwinds with the headline, this elevated base reflects real and lasting structural damage to supply that positive developments alone cannot repair.

Why reopening the strait cannot immediately restore pre-war prices

Cumulative supply losses exceed one billion barrels

Even under the most optimistic scenario, oil price is likely to stay elevated in the near future. According to the International Energy Agency's (IEA) May Oil Market Report, more than 14 million barrels per day (mb/d) of supply has been shut in since February, with cumulative losses from Gulf producers exceeding one billion barrels. Atlantic Basin producers have ramped up output, yet the global market is projected to remain in supply deficit until at least the fourth quarter of 2026. Permanent damage to regional ports and production facilities compounds the challenge; restoring output capacity will take time irrespective of when shipping resumes.

Depleted strategic reserves require years to replenish

Strategic reserves have been drawn down substantially. The IEA committed to releasing 400 million barrels from emergency stockpiles in March, causing inventories in major economies to decline at a record pace. Rebuilding depleted stocks to pre-war levels would require approximately 1 mb/d of surplus supply sustained over around three years. Beyond restocking, several countries are also seeking to structurally enlarge their strategic inventories — Australia, whose reserves stood at approximately 30 days of consumption at the onset of hostilities, has already committed A$10 billion to expand storage capacity to 50 days.

Mine-clearance operations and the shipping industry's caution

The physical reopening of the strait faces an immediate obstacle that no diplomatic announcement can resolve. Reuters reported that mine-clearance operations could require 40 to 50 days before the insurance and shipping industry are confident enough to recommence normal transits.

Vessel traffic through the strait currently stands at a handful of transits daily, against approximately 100 per day before the war. Shipping companies are seeking clarity on mine-cleared corridors, oversight arrangements, and unambiguous safety assurances from both sides before committing fully loaded supertankers — each representing roughly US$300 million in combined vessel and cargo value — to the route.

Outlook: oil price risks skewed to the upside pending 19 June signing

The market appears to have already priced in much of the optimism surrounding a genuine resolution. Further material declines in oil prices from current levels appear limited in the near term, and the forward curve similarly reflects an expectation of range-bound conditions.

The risks are skewed to the upside: any failure at the 19 June signing to produce a durable and transparent agreement — particularly on nuclear provisions — could rapidly reverse the recent decline, as each prior false start has demonstrated. A sustained recovery in strait traffic remains the most credible evidence that the deal is holding.

Technical analysis: US crude oil tests 200-DMA support near $75

The IG US crude oil continuous contract has been trending lower after failing to break through the resistance level near $108 in mid-May. The contract is currently consolidating near April's low at $79.1 and may potentially test the support provided by the 200-day moving average (DMA) near $75.3. The 200-DMA is a critical technical analysis level; a sustained move below it would shift the medium-term trend from bullish to bearish. Resistance is expected in the $85 – $86 range.

US crude oil daily price chart

The figures stated in this article are as of 16 June 2026 unless otherwise stated. Past performance is not a reliable indicator of future performance.