June 16 - Oil prices edged higher on Tuesday as traders reacted to limited information surrounding a preliminary memorandum of understanding intended to halt hostilities between the U.S. and Iran and to the growing recognition that restoring supply through the Strait of Hormuz may take longer than markets initially hoped.
Brent crude futures rose 26 cents, or 0.3%, to $83.42 a barrel, while U.S. West Texas Intermediate increased 46 cents, or 0.3%, to $81.12 a barrel as of 0108 GMT. The gains followed a near 5% decline on Monday, when prices settled at their lowest close since March 4 after U.S. President Donald Trump said a memorandum of understanding had been signed to end the U.S.-Israeli war with Iran. The conflict had closed the Strait of Hormuz - a waterway that typically carried one-fifth of the world’s oil supply prior to the disruption - and led to roughly 14 million barrels per day of output being shut in.
Despite the earlier optimism, the full text and operational details of the memorandum have not been made public and no permanent truce has been finalized. Early indications of the agreement suggest it would reopen the blockaded Strait of Hormuz and extend a ceasefire for 60 days, creating a window for negotiators to address more difficult matters such as the future of Iran’s nuclear program.
"The U.S.-Iran memorandum of understanding was an 'important step' toward stopping the fighting but a final agreement for a lasting truce 'has yet to take shape,'" Iranian President Masoud Pezeshkian said on Monday.
Market analysts flagged that absent clarity on the specifics, traders are likely to be cautious about fully removing the risk premium that built up when Gulf flows were disrupted. Tim Waterer, chief market analyst at KCM Trade, captured that sentiment, saying: "The devil may be in the details, and until those details emerge, the market is likely to show restraint regarding the further unwinding of the risk premium in energy markets."
A senior Iranian official has indicated that, while a final accord remains pending, Iran would freeze its nuclear activity under the current arrangement, refraining from further uranium enrichment or the expansion of nuclear facilities. Still, that statement does not resolve the more pragmatic question of how quickly curtailed supply can be returned to global markets.
Tony Sycamore, a market analyst at IG, noted the logistical and operational barriers to a swift normalization of supply: "The path back to normal supply flows remains far from straightforward. Clearing mines, restoring full marine insurance coverage, and getting vessels and operators comfortable enough to return to the Gulf will all take time as will bringing shuttered wells and damaged regional infrastructure back online."
With scant detail released publicly and practical steps required before crude can move freely again through the Gulf, oil markets remain sensitive to developments. Traders and energy market participants will likely watch closely for the release of concrete terms and for signs that physical and commercial obstacles to restoring flows are being removed.