Brent crude futures dropped 89 cents, or 1.12%, to $78.66 a barrel at 0005 GMT, while US West Texas Intermediate (WTI) fell 98 cents, or 1.28%, to $75.81 a barrel.
The downturn followed reports of an interim 14-point understanding between Washington and Tehran aimed at de-escalating tensions, reopening the strategic Strait of Hormuz, and easing US restrictions on Iranian oil exports.
The development has raised expectations of a gradual return of Iranian barrels to global markets after months of uncertainty driven by conflict-related disruptions.
Under the proposed framework, a 60-day negotiation period has been initiated, during which Iran would allow toll-free passage through the Strait of Hormuz one of the world’s most critical oil transit chokepoints. The agreement also outlines plans to restore full shipping flow through the waterway within 30 days.
Market watchers say the move has quickly shifted trading expectations, with investors now pricing in a faster-than-expected comeback of Iranian supply. IG analyst Tony Sycamore noted that oil markets are now “aggressively adjusting” to the possibility of increased global supply following the US-Iran understanding.
The accord reportedly leaves complex issues including Iran’s nuclear programme for future negotiations, while also proposing a $300 billion funding mechanism to support Iran’s broader economic recovery.
If implemented, analysts warn the deal could dramatically reshape the global oil landscape, potentially swinging the market from tight supply conditions to a surplus environment in the coming years.
The International Energy Agency (IEA) has already projected that global supply could exceed demand by as much as 5.05 million barrels per day in 2027 if Middle Eastern crude fully returns to the system.
Meanwhile, oil markets are also facing additional pressure from expectations of tighter US monetary policy. The Federal Reserve is increasingly weighing the possibility of further interest rate hikes later this year in an effort to control inflation a move that could slow economic growth and weaken fuel demand.
Recent Fed projections show a notable shift in outlook, with nine of 19 policymakers now supporting the idea of a rate increase, compared to none just three months ago underscoring growing concerns over persistent inflation pressures in the US economy.
