Oil Markets Price In an Iran Deal That Does Not Exist Yet

Oil prices plummeted on Tuesday as traders began to anticipate a potential U.S.-Iran agreement before it was formally signed. West Texas Intermediate dropped $4.70 to $75.64 per barrel, while Brent fell $4.61 to $79.16, both reaching three-week lows. The optimism stemmed from the belief that an agreement could restore access to the Strait of Hormuz.

Treasury Secretary Scott Bessent indicated a deal might be reached on Tuesday or Wednesday, while Secretary of State Marco Rubio reported progress in talks involving Iran and Oman. Qatar also stated that diplomatic efforts were ongoing. President Donald Trump expressed confidence, saying an agreement to reopen the strait and denuclearize Iran was "imminent."

However, Iran denied holding direct talks with Washington, claiming they were negotiating through mediators in Oman. Tehran is also seeking control over inbound shipping and visibility over outbound traffic. Real-world data, however, contradicted the market's exuberance. Only six vessels were observed passing through Hormuz on Monday, a decrease from seven the previous day, and traffic through Bab el-Mandeb remained largely unchanged.

Additionally, a cargo vessel was hit near Oman, complicating the negotiations. Prior to the conflict, approximately one-fifth of global oil and gas supply traveled through Hormuz. Persian Gulf producers have since reduced output, and Saudi Aramco estimates the world has lost over 2.6 billion barrels since the fighting began in February.

Goldman Sachs anticipates Brent to remain between $80 and $90 until a confirmed agreement or another significant escalation. The current price suggests traders may have overestimated the diplomats. Oil prices have fluctuated between periods of peace and missile strikes while physical flows remain severely restricted.