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Crude futures collapsed nearly 5% in Monday trading, plunging to three-month lows as the formal signing of a US-Iran memorandum of understanding dismantled the entrenched conflict premium.

The international Brent contract plummeted $4.16 (4.76%) to settle at $83.17 a barrel, while US WTI crude crashed $4.13 (4.87%) to close at $80.75, marking their weakest settlements since March 4.

The drop was triggered by executive confirmation that Washington and Tehran have signed an interim framework to end hostilities, with an official ratification ceremony scheduled for Friday in Geneva.

The draft accord mandates the reopening of the Strait of Hormuz within 30 days under Iranian administration, prompting an immediate repricing across global spot markets. Anticipating a massive supply influx from the 14-million-barrel-per-day baseline deficit, the National Iranian Oil Company slashed July official selling prices for Asian light crude to a $7.15 premium, nearly halving the previous month's spread. Concurrently, financial institutions are rapidly downgrading forward macro-curves, with average Brent forecasts cut to $75 for the third quarter as traders price in the complex logistical timeline of securing insurance and restarting idle Gulf export facilities.

Despite the bearish forward sentiment, underlying physical balances remain acutely starved following three months of maritime paralysis. To bridge the current downstream supply gap, the US Department of Energy executed an 8.9-million-barrel draw from the Strategic Petroleum Reserve—the third-steepest withdrawal on record.

This emergency distribution drove the strategic stockpile down to 340.3 million barrels, its lowest operational threshold since 1983. As diplomatic frameworks advance toward addressing broader nuclear sanctions, the historic depletion of western strategic buffers sets a firm fundamental floor underneath the macro-driven paper selloff.


Written by: Aiman Haikal