Brent crude oil retreated to approximately $99.5 per barrel on Thursday, as renewed optimism over a potential U.S.-Iran agreement prompted traders to scale back war-risk premiums. West Texas Intermediate, the U.S. benchmark, traded near $93.6 a barrel. The decline reflects market bets on diplomatic progress before physical crude and shipping flows can normalize.
Iran is currently reviewing a U.S. proposal to formally end hostilities, though key sticking points remain unresolved, including Washington's demands regarding Iran's nuclear program and the reopening of the Strait of Hormuz. "Oil prices will remain elevated," noted Hiroyuki Kikukawa, chief strategist at Nissan Securities Investment, underscoring the market's cautious stance.
U.S. Inventories Tighten Sharply
According to the Energy Information Administration, U.S. crude inventories fell by 2.3 million barrels in the week ended May 1, landing at 457.2 million barrels. Gasoline supplies also declined, dropping by 2.5 million barrels. Distillate stocks—covering diesel and heating oil—plummeted to their lowest level since 2005. "We're seeing continued liquidation of U.S. crude and refined-product inventories," said Andy Lipow, founder of Lipow Oil Associates, as American supply stepped in to replace missing Middle Eastern barrels. Distillate exports surged to an all-time high of 1.9 million barrels per day.
Physical Markets Feel the Squeeze
Physical fuel markets are feeling the pinch more acutely than futures. In April, Asian exports of jet fuel, diesel, and gasoline dropped to multi-year lows. The Strait of Hormuz has remained largely off-limits for shipping since the late-February Iran attack; before that, nearly one-fifth of global crude and refined products transited the strait. Jet fuel exports from Asia tumbled to 596,000 barrels per day in April, according to Kpler data, down from 1.54 million bpd in the three months before the conflict. Singapore jet fuel prices have surged 70% compared with pre-war levels, while diesel exports across Asia hit a nine-year low.
Peace Deal May Not Be Enough
Industry leaders warn that even a peace deal may not immediately ease supply strains. Patrick Pouyanne, CEO of TotalEnergies, noted that inventories are likely to be "very low" once the market emerges from the conflict. Equinor's Anders Opedal added that it will take at least six months for conditions to stabilize, even if the Middle East situation resolves.
Market Outlook Remains Uncertain
Priyanka Sachdeva, senior market analyst at Phillip Nova, observed that oil prices have been "stuck between diplomacy and disruption." She noted that a formal deal could strip away geopolitical premiums quickly, but any new strikes on oil facilities or a major flare-up could push crude sharply higher. The U.S. Energy Information Administration projects Brent crude will reach a second-quarter high of $115 a barrel before pulling back, though that forecast hinges on the duration of the Middle East conflict and the extent of production outages.
Oil Majors Report Mixed Results
Shell posted a first-quarter profit of $6.9 billion, boosted by gains tied to the Middle East war. However, the company trimmed its quarterly share buybacks to $3 billion from $3.5 billion, sending shares lower. Both Shell and BP lost ground as traders weighed oil prices and ongoing peace negotiations.
The market has shifted from panic buying to a more complex calculation: gauging how much of the war premium can be unwound before fuel inventories stop shrinking. All eyes are on Tehran's response to the U.S. proposal, with shipping lanes factoring as heavily as any official sign-off.
