Oil is near two-month lows on reports of an imminent US-Iran peace deal

Oil prices fell more than 3% on Friday to their lowest level in nearly two months as US and Iranian officials said they were close to an agreement to end their war in the Middle East.

Brent futures were down $3.34, or 3.7%, at $87.04 a barrel by 1035 CDT (1535 GMT), while U.S. West Texas Intermediate (WTI) crude was down $3.11, or 3.55%, at $84.60. Both contracts were at their lowest prices since April 17.

“The market thinks we are close to a deal,” said Phil Flynn, senior analyst at Price Futures Group.

A memorandum between the US and Iran to prevent war in the Gulf could be signed as early as Sunday, a Western source told Reuters on Friday, with Geneva emerging as a likely venue.

Iran’s Fars news agency, however, denied that speculation, citing a source close to the talks.

US President Donald Trump stopped his threatened airstrikes on Thursday, while Iran’s Mehr news agency reported that final talks on the memorandum would focus on nuclear and economic issues but exclude discussions about Iran’s missile program.

Iran’s IRNA news agency, meanwhile, said nuclear talks would take place within a 60-day period after the signing of the memorandum.

“Headlines are once again driving the market as confidence grows that a final deal will be reached and the Strait (of Hormuz) will reopen,” said Tamas Varga, an analyst at PVM Oil Associates.

The caveat, however, is that global and regional oil stocks are still low and could go lower even with a deal, as it will take time to ensure an uninterrupted flow of oil, he added.

On Thursday, Iran announced a complete closure of the strait, saying it would open fire on any ship attempting to pass through the waterway. Traffic through the strait, which normally carries a fifth of global oil and liquefied natural gas shipments, has been severely limited as a result of the war.

The US military, however, said on social media that commercial vessels continued to transit the waterway.

“We believe the market will reach an inflection point in late July if oil flows do not resume before then,” ING analysts said in a note. “This comes at a time when inventory levels and seasonally strong demand have pushed prices significantly higher towards $120-130 per barrel.”

Goldman Sachs cut its 2027 average Brent forecast to $80 a barrel due to higher supply and lower demand, but the OECD expects prices to exceed the 2025 average on a build-up of commercial oil stocks and a security premium for disruptions.

The Organization of the Petroleum Exporting Countries on Thursday cut its forecast for 2026 world oil demand growth to 970,000 barrels per day from 1.17 million bpd previously – its second straight downward revision.

The producer group also said consumption would eventually recover. It expects oil demand to grow by 1.73 million bpd in 2027, up 190,000 bpd from its previous forecast.