Energy shares drop as Iran deal reduces Hormuz disruption risks

U.S. Energy shares fell on Monday in premarket trading as crude prices dropped after Washington and Tehran reached an initial agreement that could end months-long conflict, and reopen the Strait of Hormuz.

Pakistan's Prime Minister said that the U.S. will sign a Memorandum of Understanding with?Iran? in Switzerland this Friday after his country mediated talks between both sides.

U.S. president Donald Trump announced on Sunday that the Strait of Hormuz would be "toll-free" and that an American naval blockade of Iranian port?would come to an end.

Investors should monitor how quickly Gulf producers can resume oil production and exports after the war and if more ships enter the region, said Ashley Kelty of Panmure Liberum.

Brent crude futures dropped 5.2% to $82.83 a barrel at 0928 GMT while U.S. West Texas intermediate crude fell 5.6% to $80.09 a barrel.

Exxon Mobil shares fell by 3%, and Chevron's shares by 2.6%.

Diamondback Energy and Devon Energy were both down between 2.8% to 3.7%. ConocoPhillips, Occidental Petroleum, and Devon Energy also fell.

Valero Energy and Marathon Petroleum, as well as Phillips 66, also saw a decline between 2% and 4,6%.

Shell shares fell 4.2% in Europe while BP's shares dropped 3.7%.

Since the conflict began, energy stocks have rallied as fears grew that the conflict could disrupt shipping through the Strait of Hormuz. Analysts warned that the physical oil market could take longer to recover than the financial markets.

Capital Economics Group chief analyst Neil Shearing said that even if the ships have a safe passage now, the tankers will still be in the wrong place. Oil production/refining plants need to?reach full capacity.?And questions about the cost and availability for insurance of ships crossing the Strait remain.

(source: Reuters)