Oil prices kept falling on Thursday after the U.S. and Iran signed the memorandum of understanding to end the war and reopen the Strait of Hormuz.
Brent crude, the international benchmark, fell more than 3% and dropped below $77 a barrel at 10:22 a.m. ET, while West Texas Intermediate, the U.S. benchmark, fell further and stood below $74 a barrel at the same time.
U.S. gas prices have dropped below $4 a gallon as the downward trend for oil continues. The national average is now $3.9990 a gallon, according to AAA. Axios noted that, however, the national average was $3.1880 a year ago. Diesel prices are still over $5 a gallon.
President Donald Trump signed on Wednesday the memorandum of understanding with Iran to cease hostilities and begin nuclear negotiations, with Axios detailing that one of the goals of the expedited signing is accelerating the reopening of the Hormuz Strait.
Trump emphasized the need to restart oil flows when justifying his decision to sign the document, appearing to say that reserves would have ran out in for weeks had the blockades continued.
Trump said "there are reserves all over the world, and we would really run out, and there'll be a time when you wouldn't be able to get it." He added that such a scenario would have been "bedlam." Different polls showed that most Americans blamed Trump for high energy prices, which translated into broader inflation.
Several analysts were warning of declining reserves, saying oil prices could skyrocket if they reached certain critical levels and there was no end to the blocking of the Strait of Hormuz in sight.
Energy markets have been rocked by the conflict despite the agreement. The International Energy Agency (IEA) has sharply downgraded its outlook for global oil demand this year after the shock.
In its latest Oil Market Report, released Wednesday, the Paris-based agency said global oil demand growth has weakened substantially from the optimistic forecasts it published at the start of the year.
The IEA has repeatedly warned that higher crude prices and transportation disruptions are suppressing fuel consumption, particularly in transportation and industrial sectors. Despite weaker demand, the agency believes supply growth remains relatively robust, creating the potential for a significant surplus once geopolitical disruptions ease.
The agency's latest long-term assessment projects global oil supply could increase far faster than demand in 2027, setting the stage for one of the largest surpluses in recent years. The agency forecasts supply growth of about 8 million bpd next year, compared with demand growth of roughly 2 million bpd.
