WTI crude oil futures extended their early losses during European trading hours on Monday, currently trading below the $80 per barrel mark.

In a post on Truth Social, Trump stated that Iran has agreed to fully reopen the Strait of Hormuz, and the United States has suspended planned attack operations. This news significantly boosted expectations for peace negotiations between the US and Iran, alleviating market concerns about a prolonged disruption to energy supplies.

WTI oil prices surged more than 22.5% in July due to the escalation of military conflict between the US and Iran, but the market remains worried about the sustainability of a ceasefire.

Trump announces Iran's agreement to reopen the Strait of Hormuz, oil prices plummet

The direct trigger for the oil price plunge was Trump's post on Truth Social: "The framework of the agreement has been reached. This will include the immediate, complete, and total reopening of the Strait of Hormuz." This statement significantly boosted the outlook for US-Iran peace talks, sharply reducing market fears of a long-term energy supply disruption and accelerating the unwinding of the geopolitical risk premium that had built up.

After a more than 22% surge in July, market fears over ceasefire sustainability

WTI crude oil prices rose sharply by over 22.5% in July as the US-Iran military conflict escalated, marking a significant gain. However, market concerns about the durability of any ceasefire have not dissipated, becoming the central focus of the current oil market. During the conflict, prices initially spiked higher, but with the emergence of negotiation news, prices have retreated, with investor sentiment oscillating between optimism and caution.

Analysts at a well-known institution pointed out that the market's greater concern is whether the peace hopes for the Strait of Hormuz can hold this week. Analysts warn that the potential risk of reigniting geopolitical tensions means the current easing is merely a temporary suppression, not a fundamental resolution. Against this backdrop, oil pricing remains highly sensitive to any subtle changes in the Middle East situation. If a ceasefire agreement can be substantially advanced and effectively implemented, concerns about supply disruptions will further ease, potentially putting continued downward pressure on oil prices. Conversely, if new attacks occur or signs of a breakdown in talks appear, the geopolitical premium could quickly re-emerge, driving significant price volatility once again. In the near term, the market will closely monitor the statements and actual actions of both sides to determine the true direction of the risk premium.

Institutional views

Goldman Sachs believes that, under its baseline scenario, shipping through the Strait of Hormuz will gradually resume, and the return of Middle Eastern supply will push the market toward a surplus. However, Goldman Sachs simultaneously raised its risk warning: if the strait's disruption continues into 2027, Brent could break above $120 in the fourth quarter, with an average price of $100 in 2027. If the Bab el-Mandeb Strait and the Suez Canal are also blocked simultaneously, oil prices could rise by another $25. Overall, Goldman Sachs sees short-term risks as skewed to the upside, but medium-to-long-term trends point toward looser supply and lower prices.

Citi believes the US-Iran memorandum of understanding is likely to hold, with flows through the Strait of Hormuz largely returning to normal by mid-to-late July. The rapid return of supply, combined with weak demand, will push the market into a surplus. Citi emphasizes that current oil prices have not yet fully priced in the reality of medium-term supply loosening, leaving significant room for downside.

Summary

WTI crude oil has plummeted below $80 per barrel amid expectations that Iran will reopen the Strait of Hormuz, rapidly unwinding the more than 22% gains from July. Trump announced a framework agreement, but the market remains skeptical about the sustainability of the ceasefire. If negotiations collapse or new geopolitical conflicts emerge, oil prices could rebound quickly. The short-term direction depends on the actual progress of US-Iran talks and the market's reassessment of the ceasefire's durability.

As of 16:10 Beijing time on August 3, US crude oil futures were reported at $79.87 per barrel.