Oil drops toward $75-$80 on Iran-Oman Hormuz deal hopes

Oil prices fell for a third consecutive day on Thursday after Iran announced it had reached an agreement with Oman on a proposed shipping route through the Strait of Hormuz, pushing crude toward its lowest levels since the conflict began in February. But analysts warn the market may be pricing in a diplomatic outcome that remains far from certain.

Prices Slide on Deal Hopes

Brent crude slipped below $80 per barrel while WTI dropped to around $75, extending a sharp selloff from roughly $100 a barrel on July 23. The agreement, described as being in its "final stage" by an Iranian official speaking to the Associated Press, would establish designated shipping lanes with vessels entering the Gulf through waters controlled by Iran and those leaving via a route administered by Oman.reuters+3

Iran's Foreign Ministry said the route would remain open for two to four months but stressed this did not mean a full resumption of shipping through the strait. The deal is reportedly awaiting approval from Iran's supreme leader. Iran is seeking payments equivalent to between 5 and 7 percent of cargo value for transit, while Oman has proposed a 3 percent charge — an arrangement the Trump administration has rejected.businesspost+1

Physical Market Tells a Different Story

Despite the price decline, analysts caution that underlying supply conditions remain far more precarious than in mid-June, when a similar ceasefire briefly eased tensions before collapsing. Only about 80 million barrels of oil remain stored inside the Gulf, compared with nearly 150 million barrels before the June agreement. The Brent futures curve remains in backwardation, with prompt contracts trading at a premium of $1.50 per barrel over the next month — a signal of immediate supply tightness rather than oversupply.fxstreet+2

"The risk premium unwinding over the last few days still continues to show physical tightness in the Brent structure," said Keshav Lohiya, CEO of HiLo Analytics. Diesel refining margins, though retreating from an all-time high of $75 per barrel reached on July 31, remain more than 50 percent above mid-June levels after Russia banned diesel exports following Ukrainian drone attacks on its refineries.reuters

Red Sea Adds Another Layer of Risk

Complicating the outlook, Yemen's Houthi forces struck multiple cargo ships in the Red Sea this week, sinking the India-flagged tanker MSV Faize Noore Oliya off Yemen's coast and forcing several Saudi crude tankers to reverse course before the Bab al-Mandeb Strait. The Red Sea had become a critical alternative export route for Saudi Arabia after Hormuz was largely shuttered, carrying more than 4 million barrels per day.engine+1

"Even if crude exports from the Gulf partially recover, refining systems remain under acute strain," Reuters columnist Ron Bousso wrote. "A reopening of Hormuz may improve crude availability, but it will not quickly resolve shortages of fuels that power much of the world's freight, manufacturing and agriculture."reuters