Market Response to Diplomatic Breakthrough
Global energy markets are showing signs of stabilization as Brent crude prices dipped to a three-month low of approximately $85 per barrel on Friday. This downward trend follows mounting optimism regarding a potential deal between the US and Iran aimed at ending the 15-week conflict that has severely disrupted oil transit through the Strait of Hormuz.
According to market analysts, the stabilization is driven by both diplomatic progress and shifting supply dynamics. US refineries have pivoted their focus toward increasing production of petrol, diesel, and jet fuel, effectively easing the supply squeeze that saw oil prices peak at $120 per barrel in April.
The Path to the Pump
While wholesale costs are retreating, consumers should expect a delay before seeing significant relief at gas stations. Bridget Payne, an energy analyst at Oxford Economics, noted that the transmission of lower oil costs to the forecourt typically involves a lag of two to four weeks. “Unfortunately it takes more time for the pump prices to go down than to go up,” Payne stated.
In the UK, petrol prices have already begun a gradual decline, averaging 156.8p per litre, while in the US, national averages have dropped by more than 40 cents since mid-May. Despite this, fuel prices remain significantly higher than pre-conflict levels, with UK petrol prices still 20% higher than before the February 28 escalations.
Geopolitical Fragility Remains
Experts warn that while a deal would be a critical step toward stability, significant risks remain. Richard Bronze of Energy Aspects cautioned that the Strait of Hormuz has become a key point of leverage for Tehran. “I don’t think Iran will set up a toll booth and charge fees, but there’s likely to be some effort to retain that leverage,” Bronze noted. Furthermore, analysts highlight that a sudden resurgence in Chinese demand or shifts in US domestic export policies could keep global prices volatile even if the waterway fully reopens.