Energy Markets Retreat: Pakistan Benefits From Sharp Correction in Oil Prices

International oil markets have undergone a significant repricing, with WTI crude declining to around $75–76/bbl and Brent easing to approximately $78–79/bbl, representing a cumulative decline of nearly 12% over the past two trading sessions.

Notably, prices remained largely stable during overnight trading, suggesting that markets are increasingly confident that the worst-case geopolitical scenarios have been avoided.

The nature of the correction is particularly noteworthy. Rather than exhibiting the volatility typically associated with geopolitical crises, oil prices have moved steadily lower with limited intraday fluctuations. This indicates an orderly unwinding of the substantial risk premium that had been built into prices during a period of heightened tensions.

Hormuz Reopens, Market Focus Shifts to Fundamentals

The rapid normalization of tanker traffic through the Strait of Hormuz has reassured markets that global energy supply chains remain intact. Reports indicate that substantial volumes of crude continued moving through the waterway within hours of the signing of the initial memorandum of understanding, easing concerns about prolonged disruptions to one of the world’s most critical energy corridors.

At the same time, traders are increasingly factoring in the prospect of additional Iranian crude reaching international markets. Importantly, much of this supply already exists in storage or within the export system and can enter the market faster than new production capacity can be developed. As a result, the market is shifting its focus from supply disruptions to the potential availability of additional barrels.

WTI Underperformance vs Brent Signals Supply Comfort

Another notable development has been the sharper decline in WTI compared with Brent. While Brent typically carries a higher geopolitical premium due to its status as the global benchmark, the larger decline in WTI suggests that market participants are beginning to price in an improved supply outlook rather than merely the removal of geopolitical risk.

This pattern is consistent with a market that believes physical supplies are secure and that additional volumes could become available in the coming months.

Long-Term Technical Support Still Below Current Levels

Despite the sharp correction, oil prices remain comfortably above their long-term technical support levels.

Current estimates place:

• WTI 100-week moving average in the $67–70/bbl range
• Brent 100-week moving average in the $71–74/bbl range

With current prices still approximately 8–12% above these long-term support zones, the market has room to decline further before encountering significant technical buying interest. Historically, the 100-week moving average has served as a key reference point for institutional investors, commodity funds, and producer hedging programs.

Should Iranian exports normalize smoothly and geopolitical risks continue to recede, Brent could gravitate toward the low-to-mid $70s, where stronger support may emerge from both technical and fundamental factors.

Pakistan’s Dual Energy Dividend

Pakistan stands to benefit from two concurrent developments: lower international energy prices and increased availability of domestic gas supplies. The anticipated restoration of approximately 400 MMcfd of indigenous gas production could significantly reduce reliance on costly imported LNG.

These volumes could displace a substantial portion of LNG requirements, potentially equivalent to roughly one LNG cargo every 10–12 days, depending on system demand and operational conditions.

The economic implications are considerable:

• Reduced LNG import requirements
• Lower foreign exchange outflows
• Improved current account balance
• Reduced pressure on foreign exchange reserves
• Lower fuel costs for power generation and industry
• Moderation in inflationary pressures
• Improved industrial competitiveness
• Strategic and Macroeconomic Implications

The combined effect of lower crude prices and higher domestic gas production provides Pakistan with a rare opportunity to strengthen energy security while improving macroeconomic indicators. Unlike previous periods of lower oil prices, the current environment offers a dual benefit: imported fuels are becoming cheaper, while the volume of imports required is also declining.

This combination enhances resilience against external shocks, eases balance-of-payments pressure, and creates additional fiscal space.

Should Brent prices move closer to their 100-week moving average support zone while domestic gas supplies continue to normalize, Pakistan could enter the second half of the year with one of its most favorable energy outlooks in recent years. The resulting improvement in the balance of payments, inflation trajectory, and industrial cost structure would provide meaningful support to overall economic growth and stability.

Outlook

The market’s immediate focus will remain on the pace of Iranian crude returning to normal export levels and the continued smooth operation of shipping routes through Hormuz. The stability observed following the recent selloff suggests that much of the geopolitical risk premium has already been removed.

Unless there is an unexpected reversal in regional developments, market attention is likely to shift away from geopolitics and back toward supply-demand fundamentals. Under such conditions, a gradual move toward long-term support levels in the low-to-mid $70s for Brent cannot be ruled out—a scenario that would be particularly advantageous for energy-importing economies such as Pakistan.