Oil Price Today (August 27): Crude oil dips to $87, down for 4th session amid Hormuz reopening hopes. What are experts saying?

Oil prices slipped on Thursday, extending a run of losses, as hopes grew for a reopening of the key Strait of Hormuz amid diplomatic efforts involving Iran and Oman. A reopening could ease concerns over supply disruptions caused by the Middle East war.

Brent crude futures fell 60 cents, or 0.7%, to $87.24 a barrel, putting the benchmark on track for a fourth straight session of losses. West Texas Intermediate crude futures dropped 56 cents, or 0.7%, to $81.67 a barrel, marking a fifth consecutive decline.

Iran and Oman are working to finalise an agreement governing the Strait of Hormuz, a Reuters report said on Wednesday. The comments came after Iran’s Revolutionary Guards said the two countries had reached an understanding on how to share control of the waterway and its revenues. The Strait links major Gulf oil producers with global markets.


Also read: Six months into Iran war, almost half of global oil flows from war zones

Before the U.S.-Israeli war on Iran began on February 28, the Strait of Hormuz carried oil and natural gas shipments equivalent to about one-fifth of global consumption of the fuels. Oil flows have since fallen to about one-quarter of their pre-war level after Iran moved to close the waterway in response, according to ship-tracking data.

Qatar’s prime minister is due to travel to Iran on Thursday to restart diplomatic discussions aimed at ending the conflict, which has now lasted nearly six months.

The US has stopped its attacks on Iran for about a month and is seeking to increase economic pressure on the country. This has raised expectations among investors that disruptions to Gulf supplies could ease.

However, Iran and other countries remain far apart on the conditions for ending the fighting. Iran has also targeted shipping in the Gulf and the Strait of Hormuz as it seeks to assert control over the waterway. Iranian officials have said the strait would remain closed unless the U.S. agrees to meet under an interim ceasefire deal reached in June that subsequently fell apart.

Where are prices headed?

How long the disruption lasts will be crucial for crude prices. JPMorgan estimates that every additional month of disruption could add around $7–$8 a barrel to Brent prices. If the disruption lasts for three months, the bank expects average monthly Brent prices to rise to around $114 a barrel.

Read more: Iran, Oman reach deal on Strait of Hormuz, but reopening hinges on US conditions

Goldman Sachs has similarly warned that Brent could reach $120 a barrel if shipping disruptions through the Strait of Hormuz, the world’s most important oil transit route, persist.

At the same time, Goldman Sachs expects tensions in the Middle East to eventually ease under its base case. The bank forecasts Brent to average $80 a barrel in the fourth quarter and $75 a barrel next year. However, it said risks remained tilted to the upside, with disruptions through the Strait of Hormuz and the Red Sea potentially lasting longer than expected.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)