Oil prices have fallen below their levels before the outbreak of the Iran conflict, as traders increasingly bet that a surge in crude supplies could outweigh lingering geopolitical risks in the Middle East.
Brent crude, the international benchmark, dropped as low as $72.24 a barrel on Thursday, slipping beneath the $72.48 closing price recorded on the eve of US and Israeli strikes against Iran in late February.
The decline marks a dramatic reversal from the sharp price spikes seen during the conflict, which raised fears of severe disruption to global energy markets.
The price of a barrel of oil peaked at $120 in April, well below the worst forecasts of some analysts.
Motoring groups say it usually takes about ten days for oil price falls to feed into the price at petrol pumps.
The latest fall comes as hopes of a lasting peace agreement between Washington and Tehran continue to improve market sentiment. Progress in negotiations has encouraged more oil tankers to resume voyages through the strategically vital Strait of Hormuz, easing concerns over supply bottlenecks.
Shipping data indicates traffic through the waterway has rebounded strongly. According to MarineTraffic figures reported by CNN, vessel movements through the Strait of Hormuz doubled over the past 24 hours to reach their highest level since late February.
Analysts said evidence that ships are once again transiting the strait with their satellite tracking systems activated has reassured markets. Ipek Ozkardeskaya, senior analyst at Swissquote, said the development had helped drive prices lower as traders became more confident about the security of energy shipments.
At the same time, market participants have pointed to growing signs of oversupply. Bloomberg reported that strategic stockpile releases, weaker-than-expected demand from China and a build-up of tankers carrying crude from the Persian Gulf had created excess supply in several key markets.
The shift in sentiment was also reflected in oil futures markets, where traders were willing to pay higher prices for deliveries later in the year than for immediate supplies — a signal that crude is plentiful in the short term.
“Traders are pricing in a return to normality,” said Francis Osborne, head of oil analysis at Argus Media. “They are not taking into account the risks further down the road, which still remain very real.”
Mr Osborne added that the pace of selling had become so pronounced that he “certainly would not go long at this stage, against this tide of selling”.
Shipping activity has accelerated significantly since the signing of an interim agreement between Iran and the United States aimed at ending the conflict. Data from maritime intelligence company Windward showed that 31 tankers departed the Gulf on Wednesday, almost 50 per cent more than the previous day.
Despite the improvement, uncertainty remains. Iran’s Revolutionary Guards navy said on Thursday that vessels travelling through the Strait of Hormuz must coordinate with Iranian authorities and warned ships against using unauthorised routes.
The recovery in oil flows has helped fuel a rally in global equity markets. Japan’s Nikkei index surged 4.6 per cent on Thursday, while South Korea’s Kospi gained more than 6 per cent as investors welcomed the easing threat of an energy-driven inflation shock.
“Markets are in a buoyant mood this morning, with Brent crude oil prices finally back at their pre-conflict levels,” said Jim Reid, market strategist at Deutsche Bank.
He added that the decline in crude prices had eased fears of a stagflationary shock that could have forced central banks into aggressive interest rate increases.
However, industry experts caution that the shipping sector remains exposed to significant geopolitical risks. Allianz Commercial warned this week that around $125bn worth of vessels and cargo remain stranded in the Persian Gulf amid uncertainty over long-term access to the Strait of Hormuz.
The insurer estimates that approximately 1,150 cargo ships and up to 20,000 seafarers are still affected by disruptions linked to the conflict, describing the situation as part of a “new maritime order” characterised by heightened security threats, increased costs and persistent uncertainty along critical trade routes.
While shipping traffic has begun to recover, questions over future control of the strait and whether vessels may face new transit charges could yet complicate efforts to secure a permanent peace agreement — and threaten the fragile calm that has returned to global oil markets.
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