Oil prices managed a modest rebound on Friday but still ended the week sharply lower, with traders focusing on U.S.-Iran diplomatic efforts rather than conventional supply data as violence escalates near the Strait of Hormuz. Brent crude, the global benchmark, settled at $101.29 per barrel, while West Texas Intermediate (WTI) closed at $95.42. Both benchmarks recorded a decline of more than 6% for the week.
“The market is caught between the possibility of a diplomatic breakthrough and renewed fighting,” said John Kilduff, partner at Again Capital. The price action reflects growing uncertainty about the duration and severity of the conflict near the critical oil transit chokepoint.
China’s Import Slump and Supply Tightness
China’s crude imports tumbled 20% in April to 38.5 million metric tons, the lowest level since July 2022, according to customs data. The drop was largely attributed to the closure of the Strait of Hormuz, which has tightened flows to the world’s top oil importer. The disruption has compounded concerns about global supply adequacy.
In response, OPEC+ approved a quota increase of 188,000 barrels per day for June, but analysts caution that the actual impact on markets will be limited. “Physical supply remains very limited,” said Jorge Leon, an analyst at Rystad Energy and a former OPEC official. He added that the group wants to signal it “still calls the shots,” even if the promised barrels won’t immediately reach the market.
U.S. Inventory and Production Data
Bulls found some support from weekly U.S. inventory data. The Energy Information Administration (EIA) reported that commercial crude stocks, excluding the Strategic Petroleum Reserve, fell by 2.3 million barrels to 457.2 million for the week ended May 1. Gasoline and distillate inventories also declined, pointing to tightening domestic supplies.
However, signals from U.S. shale remain mixed. Baker Hughes reported a third consecutive weekly increase in the oil and gas rig count, which rose by one to 548—the highest since early April. Still, that level is 30 rigs below the same period last year, indicating that higher prices have not yet translated into a meaningful production boost.
Analyst Forecasts and Risk Assessments
Citigroup maintained its short-term Brent price target at $120 per barrel for the zero-to-three-month horizon. The bank projects the benchmark will average $110 in the second quarter, before declining to $95 in the third quarter and $80 in the fourth. According to Citi, the market may be underestimating the potential duration and severity of supply disruptions, warning that traders are “under-pricing duration and tail risks.”
The U.S. government’s EIA, in its April outlook, forecasts Brent peaking at $115 in the second quarter and falling below $90 by the fourth quarter. However, these projections are contingent on the length of the Middle East conflict and the actual volume of supply taken offline.
Corporate Hedging and Demand Concerns
In corporate hedging activity, Diamondback Energy has purchased nearly $70 million in options tied to the WTI-Brent spread, a bet that would profit if U.S. crude exports face restrictions and domestic prices fall. Tim Skirrow, head of derivatives at Energy Aspects, called the trade a sign of “risk of a U.S. crude export ban.”
On the demand side, the International Energy Agency (IEA) projected in April that global oil demand would shrink by 80,000 barrels per day this year, as the Iran war reshapes its outlook. The agency cautioned that if tight supplies and elevated prices persist, “demand destruction will spread.”
The outlook remains highly binary. A lasting ceasefire, the resumption of normal tanker traffic through the Strait of Hormuz, tepid Chinese demand, and releases from the U.S. Strategic Petroleum Reserve could all cap prices. Conversely, if negotiations collapse and shipping disruptions continue, Brent’s current level near $100 could serve as a springboard rather than a ceiling.
This week, oil prices are likely to be driven by headline risk rather than traditional inventory calculus. Brent is supported by stubbornly tight physical supply and thinning product stocks, while WTI faces added uncertainty over U.S. export policy. The market has found some relief, but patience is in short supply.
