How the US-Iran MoU Repriced Crude Markets
The US-Iran memorandum of understanding (MoU) marked the end of crude's war-driven rally, sending prices tumbling from their peak above $110/Bbl as traffic through the Strait of Hormuz began to normalize and Gulf producers moved to restore disrupted supply.
Crude prices surged following the outbreak of the US-Iran conflict as Iran effectively halted traffic through the Strait of Hormuz, disrupting exports from one of the world's largest oil-producing regions. Even before the MoU was signed, however, prices began to soften as markets increasingly anticipated a diplomatic resolution. The formal agreement quickly validated that view. Confidence returned to the shipping industry as tanker movements accelerated, with Bloomberg estimating that crude exports from the Persian Gulf recovered to roughly 75% of pre-conflict levels.
Goldman Sachs' Dan Struyven argued that many bullish forecasts underestimated the resilience of the global oil market, pointing to ample inventories, alternative export routes (Saudi Arabia's East-West Pipeline and the UAE's Abu Dhabi Crude Oil Pipeline), and strong growth in non-OPEC production. The MoU also introduced the prospect of additional Iranian supply by granting broad sanctions waivers for oil exports, reinforcing expectations of a looser global market. Reflecting that view, Goldman lowered its fourth-quarter 2026 Brent forecast to $80/Bbl from $90/Bbl.
JPMorgan reached a similar conclusion, cutting its Brent forecasts after determining that weaker demand, rather than inventory depletion, played a larger role in balancing the market. The bank noted that softer Chinese crude demand, coupled with rising production from countries outside the Gulf, offset much of the supply disruption markets had feared.
The geopolitical risk premium that dominated trading throughout the conflict has largely been replaced by questions surrounding global supply and demand. With Gulf exports recovering and non-OPEC production continuing to grow, the next major catalyst may be China. If lower prices entice Chinese buyers back into the market, renewed demand could establish a floor beneath crude prices. However, the market is not entirely in the clear. Recent vessel strikes underscore that some geopolitical risks persist, while Lebanon remains the most likely flashpoint that could derail broader negotiations. Until then, crude markets will likely remain driven by fundamentals, but the Middle East remains a key source of upside risk.
Crude Oil Factors
Strong Non-OPEC+ Growth (Bearish, Surprise) -The EIA expects a significant increase in non-OPEC+ supply over the next two years, led by the UAE, which is now operating outside OPEC production quotas. UAE crude output is projected to average more than 5.1 MMBbl/d in 2027, up from roughly 3.2-3.4 MMBbl/d before the conflict. Meanwhile, non-OPEC+ producers excluding the UAE and US are expected to contribute more than 1.2 MMBbl/d of incremental supply, increasing the risk of a more oversupplied market.
Hormuz Flows Rapid Recovery (Bearish, Surprise) - Oil flows through the Strait of Hormuz have resumed faster than many expected. Bloomberg vessel-tracking data shows four supertankers carrying roughly 8 MMBbls of crude have exited or are currently transiting the waterway, including the first Saudi-owned vessels to pass through since the conflict began. According to Kpler, three Iranian tankers carrying nearly 5 MMBbls of crude have also departed following the lifting of the US naval blockade, marking the first outbound shipments in two months.
US-Iran MoU (Bearish, Priced In) - Crude prices have fallen sharply following the signing of the memorandum of understanding between the US and Iran. The agreement has reduced concerns about a prolonged disruption to Middle Eastern oil flows and increased expectations that negotiations could ultimately lead to a broader political settlement and normalization of trade.
Unsanctioned Iran (Bearish, Priced In) - As part of the agreement, the US Treasury Department is expected to grant waivers covering Iranian crude oil, petrochemical products, and related exports. Sanctions relief could unlock significant volumes currently stranded in storage or transit, with some analysts estimating as much as 100 MMBbls could return to the market over the coming months, subject to commercial and logistical constraints.
Reduced Chinese Buying (Bearish, Priced In) - Reduced access to Middle Eastern crude weighed heavily on Asian imports during the conflict. According to Kpler, Chinese crude arrivals fell to approximately 6.7 MMBbl/d in May, down from an average near 10.4 MMBbl/d in 2025. The sharp decline in buying has helped offset supply disruptions elsewhere and eased pressure on prompt crude balances.
Speculator Positioning (Bearish, Priced In) - Speculative sentiment has deteriorated rapidly in recent weeks. Managed money positions recorded the largest four-week decline in net length for Brent futures and options since 2020, while commercial participants have shifted to a net-short position in ICE WTI. The move likely reflects growing confidence in a bearish supply outlook and increased short exposure in the WTI-Brent spread.
USD (Bearish, Priced In) - A stronger US dollar continues to pressure commodity markets. The Bloomberg Dollar Spot Index recently reached a seven-month high as traders increased expectations for additional Federal Reserve tightening. A stronger dollar raises the cost of crude for non-US consumers and has historically acted as a headwind for oil demand and prices.
Inventories Reach Minimums (Bullish, Surprise) - The US-Iran conflict has tightened inventories across major consuming regions despite the recent decline in crude prices. Markets largely assumed the disruption would be temporary, allowing inventories to absorb the shock. However, with stocks approaching critically low levels, even modest supply interruptions could have an outsized impact on prices.
Hormuz Flows Slow Recovery (Bullish, Surprise) - The reopening of the Strait of Hormuz may prove more complicated than headline developments suggest. Mine-clearing operations and the restoration of internationally recognized shipping lanes remain necessary before traffic can fully normalize. Ongoing GPS interference, AIS disruptions, and increased use of temporary transit routes continue to elevate operational risks and could constrain flows for longer than expected.
Geopolitical Risk Premium (Bullish, Surprise) - Although tensions have eased, significant geopolitical risks remain. Iran's Revolutionary Guard has reportedly threatened renewed closures of the Strait of Hormuz, while Iranian authorities have introduced additional transit requirements for commercial vessels. Continued security concerns, including reports of mines and military activity near shipping lanes, could sustain a meaningful geopolitical premium in crude prices.
Chinese Buying Normalizes (Bullish, Surprise) - Chinese crude imports fell by an estimated 3-4 MMBbl/d during the conflict as strategic stockpiling slowed and refinery run rates declined. This reduction in demand has been a key factor preventing a sharper tightening in prompt markets. A return to more normal purchasing patterns could quickly absorb excess supply and tighten global balances.
Supply Buffer Depletion (Bullish, Priced In) - The conflict has significantly reduced global supply buffers, leaving the market increasingly vulnerable to future disruptions. Combined US commercial and strategic petroleum inventories have fallen to their lowest levels since 1985, despite refinery throughput running more than 4 MMBbl/d higher than at that time. Inventories at Cushing remain near operational minimums, while stocks across Asia excluding China have also declined sharply.
Oil/Product Inventories (Bullish, Priced In) - Global petroleum inventories continue to decline at an exceptional pace. According to Goldman Sachs, visible inventories fell by roughly 8.7 MMBbl/d during May, nearly double the average rate observed since the conflict began. Morgan Stanley estimates IEA member countries have already released approximately 150 MMBbls from planned emergency stockpile programs, equivalent to roughly 2.5 MMBbl/d of additional supply since April, highlighting the extent to which inventories have been used to offset market tightness.
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