A tentative ceasefire agreement between Israel and Lebanon on June 4 sent oil prices sharply lower, with West Texas Intermediate crude settling down 3.1% at $93.04 a barrel and Brent crude declining 2.8% to $95.03, according to Dow Jones Newswires market data. The ceasefire raised hopes that the agreement could remove an obstacle to U.S.-Iran nuclear negotiations and eventually lead to the reopening of the Strait of Hormuz, a chokepoint through which 11 million to 14 million barrels per day of oil typically flow.
“The problem is that Iran-backed Hezbollah is not part of the agreement,” Arlan Suderman of StoneX said in a note. He noted that recent data show some ships getting through the Strait of Hormuz, but “the increased passages does not come close to erasing the energy deficit, nor do we see production being restored in the region.”
Phil Flynn of the Price Futures Group said in a note that “these on-again, off-again developments keep the market on edge.” He added that even if a framework for a deal is reached that could reopen the Strait of Hormuz, “analysts (including myself) caution that full normalization of flows could take months due to logistical, de-mining, and verification hurdles.”
Iran has continued to contradict U.S. statements about progress toward a nuclear agreement, according to Samer Hasn of XS.com. “Unless we receive a signed, written, and binding agreement, we should expect ongoing escalation that will maintain the strait’s closure and drive oil prices higher,” Hasn said in a note.
The oil price movement on June 4 reversed gains from the previous session, when WTI rose 2.4% to $96.02 and Brent gained 1.9% to $97.81 on renewed exchanges of fire between the U.S. and Iran. The volatility follows a pattern that has persisted for weeks: on June 1, oil futures spiked after fresh U.S.-Iran strikes but later eased after President Donald Trump said he had spoken with Israel’s prime minister and Hezbollah, according to market reports.
Macquarie Group economists said the global oversupply of oil prior to the U.S.-Iran war is the main reason front-month Brent has stayed under $100 a barrel. “However, with stocks drawing rapidly, if the strait remains closed, at some point prices will need to move much higher: the clock is ticking,” they said in a note. Current rates of withdrawal suggest the market “will be OK for another month or two,” but if the strait remains closed at the end of the northern hemisphere summer, “physical availability will tighten materially,” they added.
War-driven inflation is shifting the outlook for global monetary policy, Brian Coulton of Fitch Ratings wrote. The effective federal funds rate stood at 3.63% on average in May, according to FRED data. Coulton noted that policy rates are “much higher than in 2021,” while labor market conditions and wage pressures are softer. Fitch expects the Federal Reserve and the Bank of England to hold rates this year and to resume cuts in 2027, and sees the European Central Bank raising rates in June before reversing the move next year.
Separately, California’s large utility-scale battery storage capacity is limiting the state’s reliance on natural gas to meet electricity demand when solar generation declines in the evening, according to East Daley Analytics. “California’s battery component is proving particularly effective at displacing gas load,” the energy intelligence firm said. However, gas-fired generation remains critical to maintain reliability after battery discharge tapers later in the night, the firm added.
Chevron is “quietly and deliberately” expanding its presence in the Eastern Mediterranean, with Greece as its next frontier following a recent acquisition and awarded rights, according to analysts James West and Sanskriti Reddy of Melius Research. “With the conflict in the Middle East continuing to expose the fragility of the modern global energy system, Chevron’s de-risked Eastern Mediterranean asset base and its frontier potential are differentiated and increasingly valuable,” the analysts wrote. They noted that ExxonMobil is also expanding in the region, suggesting the entrance of two supermajors at roughly the same time signals that others are likely to follow.