Key Points:
- Brent crude oil fell 45 cents to $110.83 a barrel while United States West Texas Intermediate dropped 27 cents to $103.88.
- President Donald Trump told lawmakers the war will end quickly, though he still threatened a new attack within days.
- The closure of the Strait of Hormuz blocked roughly 20 percent of global oil supplies, creating massive market panic.
- Citi analysts predict Brent crude prices will jump to $120 a barrel because traders underestimate the ongoing supply risks.
Oil prices fell on Wednesday morning after United States President Donald Trump told lawmakers that the ongoing war with Iran will end very quickly. Global oil markets reacted immediately to his optimistic statement. Brent crude oil futures dropped 45 cents, or 0.4 percent, to settle at $110.83 a barrel. Meanwhile, United States West Texas Intermediate futures lost 27 cents, or 0.3 percent, pushing the price down to $103.88 a barrel.
These slight price drops follow a larger downward trend from the previous day. Both major oil benchmarks lost nearly $1 on Tuesday. United States Vice President J.D. Vance triggered the initial drop when he announced that Washington and Tehran had made real progress during recent peace talks. Vance told reporters that neither country wants to resume heavy military combat. However, oil investors remain very cautious about the outcome of these delicate negotiations.
Financial experts warn that the market remains unstable. Toshitaka Tazawa, an analyst at Fujitomi Securities, monitors the situation closely. He explained that investors want to see if Washington and Tehran can actually sign a real peace agreement. Tazawa pointed out that the United States changes its official stance almost daily, which confuses traders. He believes oil prices will remain high because the threat of new American military attacks persists.
Tazawa also noted that even if the two countries sign a peace deal today, the global oil supply will not recover immediately. The war caused heavy damage to energy infrastructure. Trump sent mixed signals to the public over the past few days. He promised a quick end to the conflict on Tuesday evening. Yet, earlier that same day, he warned that the United States might need to strike Iran again to force a surrender.
Trump even admitted that he stood just an hour away from ordering a massive military strike before he decided to postpone the attack. He paused the military action because Tehran submitted a new proposal to end the wider conflict between the United States, Israel, and Iran. During his Tuesday speech, Trump claimed that Iranian leaders are begging for a deal. He then issued a strict ultimatum, warning that American forces would launch a fresh attack in the coming days if negotiators failed to reach an agreement.
The conflict created massive problems for the global energy market. The joint military operations by the United States and Israel against Iran completely shut down the Strait of Hormuz. This narrow waterway serves as the most important shipping lane for the global energy sector. Ships carrying roughly 20 percent of the entire world’s oil supply normally travel through this critical passage. The International Energy Agency officially labeled this closure as the biggest oil supply disruption in global history.
Major banks expect the situation to worsen before it improves. Citi released a report on Tuesday predicting a sharp increase in energy costs. The bank expects Brent crude prices to climb to $120 a barrel in the very near future. Citi analysts stated that current oil markets completely underestimate the risk of a long supply disruption. They believe traders are ignoring the broader dangers this war poses to the global economy.
To cope with the sudden loss of Middle Eastern oil, many countries tapped their emergency reserves. Governments and private energy companies are rapidly draining their commercial and strategic stockpiles. They must pump this backup fuel into the market to prevent widespread gas shortages. However, these emergency supplies cannot last forever. If the Strait of Hormuz remains closed for several more months, the world will face a severe energy crisis.
American supply data show exactly how quickly countries are burning through their oil reserves. In the United States, crude oil inventories dropped for a fifth consecutive week. The American Petroleum Institute released these troubling numbers on Tuesday. The data showed that everyday fuel stocks, including gasoline and diesel, fell significantly. As well, Americans continue to drive and consume fuel at normal rates, but the country imports much less oil than usual.
Energy traders eagerly await more official government data to confirm the exact extent of the shortage. Analysts expect the Energy Information Administration to report a massive drop in crude stockpiles. A recent Reuters poll predicted that American reserves fell by roughly 3.4 million barrels during the week ending May 15. The government agency plans to release the final official numbers later on Wednesday. These numbers will dictate how oil prices move for the rest of the week.
