Key Points:
- Oil prices stable as US and Iran consider extending ceasefire and peace talks.
- Strait of Hormuz remains largely paralyzed by blockades from both sides.
- Iran warns against prolonged US blockade, threatening to cut Persian Gulf trade.
- Crude market disrupted by unprecedented supply shock; prices remain volatile.
Oil prices remained stable as signs emerged that the U.S. and Iran might extend their ceasefire and restart talks to end the war. This conflict has severely disrupted energy markets.
Brent crude stayed below $95 a barrel after showing little change on Wednesday, while West Texas Intermediate (WTI) was near $91. According to a person familiar with the situation, Washington and Tehran are considering extending their two-week ceasefire. This would allow more time to negotiate a peace deal. One idea is to hold more talks in Pakistan, though other locations are also being discussed.
In the Strait of Hormuz, which connects the Persian Gulf to global markets, movements are still almost completely stopped as the conflict nears its seventh week. The U.S. has set up a blockade to cut off Iranian traffic, while Tehran is keeping the critical waterway closed to most other ships.
Ali Abdollahi, commander of Iran’s joint military headquarters, sees a prolonged U.S. blockade as a prelude to breaking the ceasefire. He warned that Iran’s armed forces “will not permit any exports or imports” in the Persian Gulf, the Sea of Oman, or the Red Sea if the blockade continues.
The crude market has been significantly disrupted by the conflict, which caused an unprecedented supply shock. This shock has increased inflationary pressure while harming economic growth. Finance chiefs meeting in Washington this week are worried about the lack of clarity on what comes next. New Zealand Finance Minister Nicola Willis stated the war “has made the whole world poorer.”
Still, while crude contracts are about a third higher than before the war, they are well below the peaks seen in the early weeks of the conflict and other benchmarks like Dated Brent, a key measure of real-world barrels. Kaes Van’t Hof, CEO of Diamondback Energy Inc., said that the forward curve is currently not showing the true scale of the crisis.
Warren Patterson, head of commodities strategy at ING Groep NV, noted, “The oil futures market doesn’t fully reflect the reality of the physical market, instead it is increasingly pricing in de-escalation.” He added that with any ceasefire likely to be fragile and U.S. and Iran demands far apart, there are clear risks for the market to move higher as further talks approach.
In the U.S., data showed drops in crude stockpiles and all major refined-product categories. Increased overseas demand pushed total oil and fuel exports to a record high as buyers, especially in Asia, sought supplies.
Carl Larry, an oil and gas analyst at Enverus, commented, “What is interesting about these numbers are — that heading into summer driving season — we might be far from getting back to $3 in June.” Average retail nationwide gasoline prices were last about $4.11 a gallon, compared with less than $3 before the war.
