Analysts note lost production cannot be restored immediately
Global oil prices dropped sharply Monday after the United States and Iran reached a tentative deal to extend their ceasefire agreement and reopen the Strait of Hormuz, but a senior Canadian energy investor warned that markets should not expect prices to return to where they stood before the conflict began.
WTI crude tumbled more than 5% to around US$80 per barrel Monday, touching a two-month low after the US and Iran reached a peace agreement aimed at ending the Middle East conflict. The interim accord is expected to be signed in Switzerland, with US president Donald Trump saying the free flow of oil from the Persian Gulf would resume once the deal takes effect.
However, neither Washington nor Tehran has released the text of the memorandum of understanding, leaving markets cautious and prompting shipping companies to delay sending vessels through the route until greater clarity emerges.
Hormuz reopening far from simple
Eric Nuttall, partner and senior portfolio manager at Ninepoint Partners, cautioned Monday that critical details of the agreement remain unresolved.
“Will the Strait of Hormuz actually be toll-free? The (US) vice president this morning said that those details are going to be worked out over the next 60 days, and that has a really profound impact,” Nuttall told BNN Bloomberg.
Amos Hochstein, who served as a senior energy adviser to former US president Joe Biden, offered a similarly skeptical view.
“No matter what happens, the Iranians will control the Strait of Hormuz for the foreseeable future — it doesn’t even matter what the deal says,” Hochstein told CNBC.
The near-shutdown of Hormuz, which handles about 20% of global crude and natural gas flows, has triggered what analysts describe as the most severe disruption to oil markets in recent memory, Trading Economics reported.
Cumulative damage runs deep
Nuttall pointed to the scale of supply lost during the conflict as a major reason a quick return to lower oil prices is unlikely.
“The market has forfeited 1.7 billion barrels of Middle Eastern (oil) production by the time the lag effect ends,” he said. “We will have lost roughly 11 million barrels per day of that production, and it can’t come onstream until ships are actually willing to not just leave the Strait empty, but actually come back.”
Infrastructure damage across the region compounds the problem. Saudi Arabia said its oil production capacity had been reduced by roughly 600,000 barrels per day following attacks on energy facilities, while a major pipeline designed to bypass the Strait of Hormuz was also struck.
Nuttall added that approximately 70 petroleum facilities around the world sustained damage during the conflict, with some sources suggesting the full extent of the damage has not been publicly disclosed.
New price floor emerges
Nuttall said he believes the US benchmark WTI will settle no lower than US$80 per barrel going forward — well above the roughly US$70 per barrel at which crude was trading before hostilities began in late February.
The US Energy Information Administration, in its latest Short-Term Energy Outlook, now forecasts Brent crude to average US$79 per barrel in 2026 — a sharp increase from its previous estimate of US$58 per barrel — before declining to US$64 per barrel in 2027 as supply normalizes.
Goldman Sachs had earlier warned that Brent could average above US$100 per barrel through the second half of 2026 if the Strait of Hormuz remained closed for another month, with a more adverse scenario projecting prices as high as US$120 per barrel in the third quarter.
Despite optimism surrounding the ceasefire, markets remain cautious about lingering security concerns affecting shipping through the Strait of Hormuz.
Nuttall said the path ahead remains uncertain.
“We will not have details for either days, weeks, or up to two months,” he said.
