Oil futures experienced a significant decline this week as market participants increasingly priced in a potential ceasefire between the United States and Iran, which could alleviate shipping disruptions in the strategic Strait of Hormuz. Brent crude closed at $92.05 per barrel on Friday, while West Texas Intermediate settled at $87.36. This marks the steepest weekly drop for crude since April.
Ceasefire Talks and Market Sentiment
The sell-off occurred despite the absence of a formal political agreement. According to reports, the US and Iran have a tentative framework to maintain a ceasefire and reopen the Strait of Hormuz, which handles approximately 20% of global oil and LNG shipments. However, President Donald Trump has yet to finalize the deal, and Iranian state media has denied the existence of a final text. John Kilduff of Again Capital expressed surprise that prices were not higher, noting that the market appears to view the ceasefire as a foregone conclusion.
Supply Tightness Persists
Physical crude supply remains constrained. The Energy Information Administration reported that US commercial crude inventories, excluding the Strategic Petroleum Reserve, fell by 3.3 million barrels last week to 441.7 million barrels, which is 2% below the five-year average. Gasoline stocks decreased by 2.6 million barrels, while distillate fuel supplies—including diesel and heating oil—dropped by 2.1 million barrels. These draws underscore ongoing tightness in the market.
Shipping Data Mixed
Shipping data from LSEG and Kpler showed that two supertankers and an LNG tanker exited the Strait of Hormuz earlier this week with their transponders off, heading toward India and China. However, overall traffic through the strait remains low. Prior to the conflict, the waterway saw between 125 and 140 vessels pass daily. Chevron CEO Mike Wirth told Bloomberg TV that the company will not pay a toll to transit the strait, citing multiple recent incidents with vessels. He emphasized that trade normalization depends on shipowners and insurers regaining confidence.
Asia Demand Signals
Japan's crude imports in April plunged nearly 66% year-on-year to 850,000 barrels per day, the lowest level since 1962, as Middle East supply disruptions took a toll. Imports from top suppliers Saudi Arabia and the United Arab Emirates both fell by at least 60%. This data highlights the real-world impact of the Hormuz uncertainty on Asian energy markets.
Analyst Outlook and OPEC+ Meeting
Despite the recent sell-off, analysts remain cautious. A Reuters poll of 33 economists and analysts raised the 2026 Brent crude forecast to $90.44 per barrel from $86.38 a month ago, with WTI seen at $84.63. Surabhi Menon of EIU stated that the chance of new record prices this year is low. UniCredit's Tobias Keller pointed to the inability to physically move incremental barrels as the main constraint, rather than OPEC+ quotas. The group is set to meet on June 7 to discuss raising July output targets by approximately 188,000 barrels per day, though disruptions around Hormuz may limit some members' ability to increase production.
Risks and Week Ahead
The market faces considerable downside risks over the weekend. If the ceasefire deal is rejected, delayed, or if new attacks occur, or if insurers and tanker owners remain hesitant, supply could tighten rapidly, potentially reversing much of the recent sell-off. Inventories are already low, Asian buyers are still not receiving normal volumes, and the market has historically moved by multiple dollars on a single Hormuz headline. Looking ahead, traders will focus on formal US and Iranian sign-offs, followed by actual tanker traffic through the strait. Attention will then shift to data on tanker movements, destinations, and whether refiners begin receiving crude that was missed during April and May.
