Oil Prices Plunge Below $90 After Reports On Potential Reopening Of Strait Of Hormuz

US oil prices dropped below $90 a barrel after reports emerged that Iran would open the Strait of Hormuz as part of a framework deal with the United States. By 9:26 am ET, West Texas Intermediate futures slid 4.6% to $89.55 per barrel. International benchmark Brent oil was trading 3.73% lower at $95.87, CNBC reported.

The losses more than erased Brent's Tuesday gains, Reuters reported. WTI and Brent touched intraday lows of $87.77 and $94.16 per barrel on Wednesday, their lowest in over a month.

July Brent futures rose 3.6% in the previous session post new strikes by the US in Iran, while Israel ramped up bombing in Lebanon, further diminishing peace efforts.

The drop in oil prices came after Iranian state TV said it had seen a draft of an initial, unofficial framework for a deal with the US to end their conflict and reopen the Strait of Hormuz.

This, coupled with a pick-up in tanker traffic in the strait, outweighed news of a tanker reporting an explosion off Oman's coast and Iran's previous comments that the US had violated a ceasefire.

Under the framework of the deal, Iran would restore commercial shipping traffic through the strait to pre-war levels within one month, as per Reuters. The deal claims that the US would lift a naval blockade and withdraw military forces from Iran's vicinity.

The report added that the framework excludes military vessels. Iranian state TV added that the country would manage ship traffic through the Strait of Hormuz in cooperation with Oman, adding that the deal was not finalised.

Iran's effective ⁠closure of the Strait of Hormuz has shut down the supply of over 14 million barrels per day of oil from the Middle East, according to the International Energy Agency (IEA).

Industry veterans are unsure if oil flows will quickly return to prewar levels even if a deal is signed. Sultan Ahmed al-Jaber, head of Abu Dhabi National Oil Co., told CNBC last week that it would take until the first or second quarter of 2027 for flows to fully reach normal levels.

While hopes of a peace deal remain, oil uncertainty brought upon by the Strait of Hormuz blockade has spurred the demand for electric cars, the IEA said in its annual Global EV Outlook report. As per the agency, electric cars are likely to capture 30% of the global market, with yearly sales crossing 2.3 crore.