Oil prices fell sharply on Wednesday, with Brent crude dropping below $80 a barrel to its lowest level since March, as prospects of renewed Iranian supply eased inflation worries and lifted market sentiment. The US and Iran have reached an interim agreement, set to be signed on Friday, that would reopen the Strait of Hormuz and allow Iran to sell oil immediately. The move offers a rare relief signal after months of energy disruption and geopolitical tension.
Under the 14-point draft memorandum, the US will waive sanctions on Iranian crude, petrochemicals, and related services, including banking and insurance. The deal also kicks off 60 days of formal talks aimed at ending the broader conflict and placing limits on Iran’s nuclear program. However, traders remain cautious about the timeline for actual supply normalization. HSBC expects the full reopening of Hormuz flows to take until the end of September, and shipping lines are waiting for security guarantees before sending vessels through the strait.
The drop in oil prices has already rippled through financial markets. Bond yields fell as the disinflationary signal gained traction: US Treasury yields slipped, Japan’s 10-year yield eased 1.5 basis points to 2.63%, and Australia’s equivalent fell nearly 5 basis points. Meanwhile, equity markets showed a split tone, with the Nasdaq falling 1.15% but the Dow closing at a record. The dollar was little changed as traders awaited the first Federal Reserve policy decision under Chair Kevin Warsh, with the central bank expected to hold rates steady.
Supporting the demand outlook, the American Petroleum Institute reported that US crude inventories fell by 8.33 million barrels last week, more than double the estimated draw. This provided a floor to prices. Additionally, US gasoline prices have pulled back toward $4 a gallon from a May peak above $4.56, easing pressure on consumers.
The potential return of Iranian barrels could cool headline inflation, giving the Fed more room to maintain a dovish stance. For the crypto market, the news is a positive macro tailwind, as lower energy costs and reduced inflation fears tend to support risk-on assets.
