Energy shares fall as Iran deal lowers Hormuz disruption risk

Energy shares fall as Iran deal lowers Hormuz disruption risk June 15 : U.S. energy shares fell in premarket trading on Monday as crude prices tumbled after Washington and Tehran reached an initial deal that could end the months-long conflict and reopen the vital Strait of Hormuz. The U.S. and Iran will sign a memorandum of understanding in Switzerland on Friday, Pakistan's prime minister said, after his country helped mediate talks between the two sides. U.S. President Donald Trump said on Sunday the Strait of Hormuz, which carries roughly a fifth of global oil consumption, would be open "toll free" and that a U.S. naval blockade of Iranian ports would end. "Markets will price in a large optimism discount that 'normality' is returning, although we would caution that flows are not likely to resume to anywhere near pre-war levels for months, and investors should follow how quickly Gulf producers are able to resume oil production and exports following damage from the war and whether more ships will enter the region," said Ashley Kelty, analyst Panmure Liberum. Brent crude futures fell 5.2 per cent to $82.83 per barrel by 0928 GMT, while U.S. West Texas Intermediate crude was down 5.6 per cent at $80.09 per barrel. Shares of Exxon Mobil and Chevron fell 3 per cent and 2.6 per cent, respectively. Diamondback Energy, Devon Energy, ConocoPhillips and Occidental Petroleum were down between 2.8 per cent and 3.7 per cent. Refiners Valero Energy, Marathon Petroleum and Phillips 66 also declined between 2 per cent and 4.6 per cent. In Europe, shares of BP fell 3.7 per cent, while Shell dropped 4.2 per cent. Energy stocks had rallied since the conflict broke as concerns mounted that it could disrupt shipments through the Strait of Hormuz. Analysts cautioned that physical oil markets could take longer to recover than financial markets. "Even if ships now have safe passage, tankers are in the wrong place, oil production/refining facilities need to get up to full capacity, and questions over the cost and availability of insurance for ships traversing the Strait will remain," said Capital Economics group chief analyst Neil Shearing.