Oil Price Falls to Lowest Since March After Truce

Brent traded near 88 dollars a barrel on June 12, its lowest level since March of this year and a drop of more than 4 percent from the previous day. The trigger was not a change in output but in politics: a halt to planned strikes on Iran and word that a deal could be reached as early as the weekend stripped out part of the war risk premium that had kept prices elevated for weeks.

That premium is, in trading shorthand, the price of fear. While shipping through the Strait of Hormuz, the route for a fifth of the world’s oil, was in doubt, buyers paid more to secure delivery. Once the halt to strikes reduced the odds of a blockade, that add-on to the price began to melt away. The result is a decline measured in double-digit percentages on a monthly basis: over thirty days Brent is about 16 percent cheaper, and about 20 percent below this year’s highs.

Why does the market still doubt a full peace?

The price drop does not mean traders are convinced the truce will hold. The oil market reacts to supply, not to statements, and supply through Hormuz has not yet normalized. Clearing mines from the strait takes time, and energy facilities damaged in the strikes need repairs before they return to full capacity. Until that is done, any fresh headline from the region can put part of the risk premium back into the price as quickly as it came out.

That is why caution is built into the price move itself. A drop of more than 4 percent in a single day shows how much risk premium was in the price, but also how fast it would return if talks collapse. The market, in other words, is betting on a truce while insuring against its failure. That is the gap between a political announcement and the physical oil that actually moves through the strait.

What does a lower oil price mean for Serbia?

Serbia is a net importer of oil and oil products, so any large shift on the global market is felt sooner or later at the pump and in transport costs. Cheaper crude eventually lowers the purchase price of fuel, which feeds into the cost of moving goods and, through that, into the broader consumer basket. The effect is not instant: between a fall on the exchange and a lower price at the pump sit several weeks, plus excise duties, margins and the dinar’s rate against the dollar.

That is exactly why the current decline is worth watching but not overstating. If the truce holds and Hormuz shipping normalizes, lower prices could stick and ease the pressure of fuel inflation. If talks fail, the risk premium returns, and with it a pricier barrel. For now the market has chosen the first option, but with reservations.

Do you expect the fall in oil prices to reach pumps in Serbia, or will excise duties and the exchange rate swallow it?