US-Iran MoU arrested oil price spike — but raised the floor: Brent not going back to $60/barrel?

The US-Iran memorandum aimed at ending months of conflict across the Middle East has triggered a dramatic shift in global oil markets.

Traders have rushed to unwind the geopolitical risk premium that sent crude prices soaring during the crisis, betting that millions of barrels of Middle Eastern oil will soon flow back into world markets.

But while the immediate threat of a supply shock has eased, energy analysts warn that investors may be overlooking a more fundamental reality: the agreement is only a framework for future negotiations.

Meanwhile, global oil inventories are historically depleted, and even a sizeable supply surplus may not be enough to send crude prices back to the levels seen before the war.

Instead, the deal may have created a new, higher floor for oil prices, say analysts.

As of 11.24am Tokyo time on Friday (June 19), Brent hovered at just under $80, even as WTI dropped slightly to $75.73 while Murban crude stood at $73.93.

Market breathes sigh of relief

Oil prices have fallen sharply since Washington and Tehran announced a 14-point Memorandum of Understanding designed to end hostilities and launch negotiations toward a broader settlement.

Brent crude slipped below $80 a barrel for the first time since March as markets priced in the reopening of the Strait of Hormuz — the world's most important oil shipping corridor — and the gradual return of more than 13 million barrels per day of disrupted regional production.

For traders, the message appeared straightforward: lower geopolitical risk means more oil, and more oil means lower prices.

Yet the reality is considerably more complex.

MoU: Not a peace treaty

Despite the market's optimism, the US-Iran agreement is not a comprehensive peace accord.

It is a memorandum establishing a framework for negotiations, with both governments agreeing to seek a final settlement within 60 days, subject to extension if talks continue progressing.

Many of the issues that drove the conflict remain unresolved.

These include:

• permanent sanctions relief on Iran;

• the future of Iran's nuclear program;

• long-term regional security arrangements;

• mechanisms for enforcing compliance; and

• permanent guarantees for freedom of navigation through the Strait of Hormuz.

Even Iran's commitment on maritime security stops short of a legally binding guarantee, instead pledging to use its "best efforts" to facilitate commercial shipping.

That distinction matters.

If negotiations collapse or either side fails to comply with future commitments, the geopolitical premium currently disappearing from oil markets could quickly return.

Markets pricing in an oil surplus

Investors nevertheless appear focused on the supply outlook.

The International Energy Agency (IEA), in its first long-term outlook for 2027, projects global oil demand to rise by roughly 2 million barrels per day, while production capacity could expand by as much as 8 million barrels per day.

That would leave the market with an apparent surplus approaching 5 million barrels every day.

Under normal circumstances, such an imbalance would place sustained downward pressure on prices.

The expectation of abundant supply has become one of the principal drivers behind the recent decline in Brent crude.

Why a glut may not produce cheap oil

History suggests supply is only one side of the equation.

During months of conflict, governments and commercial buyers drew heavily on oil inventories to offset disrupted production.

Global petroleum stockpiles have been depleted at an estimated pace of 3.8 million barrels per day, including approximately 2.4 million barrels of crude and 1.4 million barrels of refined products.

OECD emergency inventories have fallen to their lowest levels in more than three decades, while the U.S. Strategic Petroleum Reserve remains near multi-decade lows following years of emergency releases.

Those depleted inventories effectively become future demand.

Instead of immediately overwhelming the market, much of the additional oil expected from Iran and other Gulf producers may first be absorbed by governments rebuilding strategic reserves and refiners replenishing commercial storage.

In other words, future production growth may replace empty tanks before it significantly expands available market supply.

Production will not return overnight

Another factor limiting downside pressure is timing.

Although sanctions relief could eventually allow Iran to increase exports substantially, restoring full production capacity across the region will take time.

Oil fields require maintenance after prolonged disruptions, export infrastructure must be fully reactivated, and shipping schedules need to normalize.

Governments are also unlikely to flood the market immediately if doing so would significantly depress prices.

Several major producers retain the flexibility to manage production levels depending on market conditions.

A new equilibrium for oil

Analysts increasingly argue that the post-war oil market may look very different from the one that existed before the conflict.

According to Ole Hansen, Head of Commodity Strategy at Saxo Bank, depleted inventories, strategic reserve rebuilding, gradual production recovery and stronger seasonal demand are likely to support prices even if geopolitical tensions continue easing.

Futures markets appear to support that assessment.

Brent crude contracts for 2027 continue trading well above average pre-conflict levels, suggesting investors expect oil to stabilize at structurally higher prices rather than revisit the $60-per-barrel environment that prevailed before the crisis.

The bottom line

The US-Iran memorandum has dramatically reduced fears of an immediate disruption to global energy supplies and reopened the possibility of millions of barrels returning to international markets.

Yet the agreement remains a diplomatic roadmap — not a final peace settlement.

Much depends on whether negotiations succeed, sanctions are permanently lifted, and maritime security in the Strait of Hormuz proves durable.