Market sentiment improved as traders interpreted recent developments as signs of de-escalation despite the absence of a formal agreement between Washington and Tehran. While negotiations remain unresolved, investors appeared increasingly focused on the reduced likelihood of a significant expansion of the conflict.

Earlier concerns about a potential disruption to oil exports from Oman also eased after Petroleum Development Oman stated that operations at Mina al Fahal, the country’s primary crude export terminal, were unaffected despite reports of an explosion near loading facilities. Oman typically exports between 800,000 and 900,000 barrels of crude oil per day through the terminal.

Despite Friday’s decline, both crude benchmarks still posted their first weekly gains in three weeks. Brent rose 1.2% for the week, while WTI advanced approximately 3.6%, supported by earlier gains tied to continued restrictions on shipping through the Strait of Hormuz and ongoing uncertainty surrounding U.S.-Iran negotiations.

Although progress toward a broader regional settlement remains uncertain, market participants continue to monitor developments involving Lebanon and Hezbollah, as Iran has linked any agreement with Washington to a lasting ceasefire in Lebanon. Comments from President Trump expressing optimism about progress between Israel and Lebanon also contributed to the perception that regional tensions may be gradually easing.

At the same time, several factors continue to limit downside pressure on prices. OPEC maintained its forecast for global oil demand growth of 1.2 million barrels per day this year, while ongoing restrictions in the Strait of Hormuz continue to constrain global energy flows. However, weaker demand growth, particularly in China, along with alternative export routes and inventory availability, have helped prevent prices from moving significantly higher.

As a result, crude markets ended the week balancing signs of diplomatic progress against the reality of continued supply disruptions and unresolved geopolitical risks across the Middle East.

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The decline followed news that Israel and Lebanon had agreed to implement a ceasefire, raising expectations that broader regional negotiations could gain momentum. Iran has previously linked progress in its discussions with Washington to an end to fighting involving Hezbollah, the Iran-backed group operating in Lebanon.

The move lower reversed gains from the previous session, when oil prices rose on renewed military activity in the region, including Iranian missile attacks on Kuwait and U.S. strikes near the Strait of Hormuz. Traders viewed the ceasefire announcement as a potentially important step toward reducing geopolitical tensions and easing risks to global energy supplies.

Market participants also pointed to signs that shipping activity could gradually improve. Although traffic through the Strait of Hormuz remains severely restricted, some vessel repositioning activity has been observed near the Persian Gulf, fueling speculation that maritime flows could begin to normalize if diplomatic efforts continue to advance.

Despite Thursday’s selloff, concerns about tight oil supplies remain. U.S. crude inventories fell by 8 million barrels during the week ending May 29, according to Energy Information Administration data released Wednesday, significantly exceeding expectations for a 4.0 million barrel draw. The larger-than-expected decline highlighted ongoing strength in refinery demand and exports.

Additional support for the market came from comments by UBS analysts, who noted that as long as flows through the Strait of Hormuz remain constrained, the underlying balance of risks continues to favor higher prices. Meanwhile, OPEC reiterated its expectation for solid global oil demand growth and left its forecasts unchanged despite ongoing disruptions in the Middle East.

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Geopolitical tensions intensified after Iran launched ballistic missile attacks toward Kuwait and Bahrain, resulting in casualties and injuries, while U.S. forces carried out strikes on Iran’s Qeshm Island. The renewed hostilities dampened expectations for a ceasefire and reinforced market concerns about the security of regional energy supplies.

Negotiations between Washington and Tehran showed little sign of progress. Iranian Foreign Minister Abbas Araqchi stated that communications between the two countries remain open and that both sides continue to review proposals that have been exchanged. However, Iranian media reported that formal exchanges through intermediaries have been suspended pending progress on Tehran’s demands regarding the conflict in Lebanon.

The continued impasse has kept attention focused on the Strait of Hormuz, where shipping restrictions remain a major constraint on global oil flows. Analysts noted that the prolonged disruption of traffic through the waterway continues to support elevated risk premiums across crude markets.

Additional support came from growing concerns over tightening inventories. The International Energy Agency recently warned that global oil stockpiles could reach critically low levels during the peak summer demand season if current drawdown rates persist.

In the United States, crude inventories fell by 8.0 million barrels during the week ending May 29, according to the Energy Information Administration. The decline was substantially larger than analysts’ expectations for a 4.0 million barrel draw and reflected strong export activity and refinery demand. The larger-than-expected inventory reduction reinforced concerns about tightening supplies and helped push oil prices higher.

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Market participants remained focused on developments in the Iran conflict and the status of the Strait of Hormuz, a critical shipping route that normally handles roughly 20% of global oil and liquefied natural gas flows. Iranian officials reported that Tehran is reviewing a proposed agreement with the United States to halt hostilities, though communications between the two sides have reportedly slowed in recent days. President Trump, however, stated that negotiations remain active and expressed confidence that an agreement could be reached within the coming week.

Despite periodic optimism surrounding diplomatic efforts, oil markets continue to price in the risk that significant shipping restrictions through the Strait of Hormuz could persist. Analysts noted that the situation remains highly fluid, with conflicting statements from U.S., Iranian, and Israeli officials contributing to ongoing market volatility.

Supply concerns were further reinforced by warnings from the International Energy Agency that global oil inventories are continuing to decline ahead of the peak summer demand season. In the United States, analysts expect upcoming inventory data to show a drawdown of approximately 4 million barrels of crude oil for the week ending May 29, which would mark a sixth consecutive weekly decline in crude stockpiles.

The combination of constrained Middle East exports, falling inventories, and uncertainty surrounding diplomatic negotiations continues to provide support for crude oil prices despite broader concerns about global economic growth.

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Iran’s Tasnim News Agency reported that Tehran and its regional allies were discussing plans to completely block the Strait of Hormuz and potentially expand disruptions to other strategic shipping routes, including the Bab el-Mandeb Strait at the southern entrance to the Red Sea.

The reports marked a sharp escalation in tensions after weeks of speculation that the United States and Iran were nearing a diplomatic agreement that could ease restrictions on maritime traffic. The conflict has already severely curtailed shipping through the Strait of Hormuz, a critical corridor that normally carries roughly one-fifth of global oil and liquefied natural gas supplies.

Markets pared some gains after President Donald Trump said he was unaware that negotiations had been formally suspended and added that intermediaries had secured assurances from Hezbollah that it would not launch attacks against Israel.

Despite Monday’s rally, both oil benchmarks finished May sharply lower. Brent and WTI declined between 17% and 19% during the month, marking their largest monthly drops since March 2020, as traders repeatedly priced in expectations of a ceasefire and eventual reopening of regional shipping routes.

“It just seems that both sides are in different worlds,” said Andrew Lipow of Lipow Oil Associates, warning that continued disruptions could eventually drain commercial inventories enough to trigger another sharp price spike.

The potential expansion of maritime disruptions beyond Hormuz has become a growing concern. The Bab el-Mandeb Strait serves as a key route for Middle Eastern exports, with an estimated 4 to 6 million barrels per day of Saudi crude moving through the passage.

Shipping executives meeting in Athens on Monday said any future peace agreement would need to provide clear guarantees and operating rules before commercial vessels could confidently resume normal transit through the region.

Beyond geopolitical concerns, traders also continued to monitor economic conditions. Weak manufacturing data from China raised questions about demand growth in the world’s second-largest oil consumer, while Goldman Sachs noted that softer consumption in China and Europe could weigh on prices later in the year despite ongoing supply disruptions.

Meanwhile, expectations remain for another drawdown in U.S. petroleum inventories. Analysts surveyed by Reuters estimate crude stockpiles fell by approximately 3.6 million barrels last week, with gasoline and distillate inventories also likely declining.

Additional supply developments included Kazakhstan restoring production at the Tengiz oil field and Venezuela increasing exports for a third consecutive month, supported by higher shipments to the United States, India, and Europe.

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The three-month conflict has repeatedly produced expectations of a breakthrough that would reopen the Strait of Hormuz, a critical shipping lane that normally carries roughly one-fifth of global oil and natural gas supplies. While both Washington and Tehran signaled that an agreement may be near, key differences remain over how shipping through the strait would be managed.

According to Iran’s Fars News Agency, the proposed agreement would require Iran to reopen the waterway, though Tehran maintains it would continue regulating traffic under its own framework. Iranian officials have previously suggested that vessels transiting the strait could face fees or other restrictions even after a formal reopening.

Despite continuing restrictions on shipping and ongoing inventory drawdowns, investors focused on reports that the United States and Iran had tentatively agreed to extend a ceasefire and ease maritime restrictions.Negotiators had reached a preliminary understanding, though final approval remained outstanding.

Analysts noted that the market’s attention remains fixed on the possibility of a diplomatic resolution rather than current supply conditions.

“While oil flows through the Strait of Hormuz remain restricted and oil inventories keep falling, the market focus remains on the possibility of a deal between the U.S. and Iran,” UBS analyst Giovanni Staunovo said.

Shipping activity through the strait remains well below pre-war levels, and analysts caution that even if an agreement is finalized, a return to normal energy flows could take months. ING analysts said reopening the waterway would provide immediate relief to global oil markets, but a full recovery in exports remains uncertain.

Signs of the disruption’s economic impact continue to emerge. Japan, which relies heavily on Middle Eastern crude, reported a 66% year-over-year decline in oil imports last month. Meanwhile, U.S. government data showed crude, gasoline, and distillate inventories all fell last week as refinery demand remained strong despite lower exports.

Reflecting expectations for a prolonged normalization process, Commerzbank raised its Brent crude forecast to $90 per barrel by the end of the third quarter and $85 by year-end, assuming shipping through the Strait of Hormuz remains constrained for several more months.

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Markets continued to swing sharply on headlines tied to negotiations over the three-month Iran conflict and the potential reopening of the Strait of Hormuz, where shipping traffic remains far below normal pre-war levels. Negotiators have reached a tentative agreement to extend the ceasefire for another 60 days, citing sources familiar with the discussions. The agreement still requires approval from President Donald Trump, while Iran’s Tasnim news agency said no memorandum of understanding had been finalized.

“The complex continues to advance grudgingly on bullish developments out of Iran while plunging markedly on even the slightest suggestion of a reopening of the Strait of Hormuz,” Ritterbusch and Associates said in a market note.

Analysts said the market remains heavily focused on the status of the strait and the risk of renewed supply disruptions, with traders reacting far more strongly to diplomatic headlines than to underlying inventory data.

U.S. government data released Thursday showed domestic crude inventories fell by 3.3 million barrels last week, marking a sixth consecutive weekly decline. The draw was smaller than analysts’ expectations for a 4.1 million-barrel reduction. Gasoline and distillate fuel inventories also declined.

Despite tightening U.S. stockpiles, analysts said Middle East developments continue to dominate price action.

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Investor sentiment shifted after U.S. Secretary of State Marco Rubio said negotiators had made some progress in talks with Iran, though President Donald Trump cautioned that significant disagreements remain. Iranian media also reported unresolved issues despite speculation surrounding a possible framework agreement.

Reports from Iranian state television suggested a tentative framework could restore shipping through the Strait of Hormuz within a month and potentially ease the U.S. naval blockade on Iranian vessels. Under the reported arrangement, Iran and Oman would jointly oversee shipping traffic in the strait, while U.S. forces would pull back from the region. Washington, however, denied that any finalized agreement had been reached.

Markets also reacted to comments from Iranian military officials indicating that the likelihood of renewed fighting had diminished, boosting hopes that the worst of the supply disruption may eventually ease.

Shipping activity through the strait showed modest improvement. Data indicated that a Chinese-operated COSCO oil products tanker was transiting the chokepoint on Wednesday, following the passage of two crude tankers over the prior day. Even so, overall traffic remained far below pre-war levels.

Analysts said the gradual return of vessels through the waterway is reducing some of the extreme supply-risk premium that had driven oil prices sharply higher over recent months.

“The increase in shipping activity is reinforcing expectations that the critical waterway could gradually reopen,” said Mark Schaefer of Liquidity Energy, noting that markets are beginning to price in the possibility of improved global energy flows.

Despite the decline in oil prices, tensions remain elevated across the region. The United States carried out additional strikes in Iran on Tuesday, while Israel intensified military operations in Lebanon, complicating broader diplomatic efforts.

The conflict has removed more than 14 million barrels per day of Middle Eastern oil supply from global markets, according to the International Energy Agency, contributing to one of the largest energy disruptions in recent history.

There were also emerging signs that sustained high energy costs are beginning to weigh on demand. Sources told Reuters that India’s two largest airlines are sharply reducing planned domestic flights for June and July amid rising fuel costs and weakening travel demand.

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Brent crude climbed $3.44, or 3.6%, to settle at $99.58 per barrel. U.S. West Texas Intermediate (WTI) crude, however, fell $2.71, or 2.8%, to close at $93.89, as U.S. markets were catching up after being closed Monday for the Memorial Day holiday.

The latest market reversal came after Iran accused the United States of violating a fragile ceasefire by carrying out strikes in southern Iran’s Hormozgan province. Iranian media reported explosions in the region, while U.S. Secretary of State Marco Rubio said negotiations toward a broader agreement could still take “a few days.”

The conflict has severely disrupted traffic through the Strait of Hormuz, a critical route for roughly 20% of global oil and liquefied natural gas shipments. Iran has largely blocked non-Iranian vessels from using the waterway since the war began in late February.

Despite those restrictions, shipping data showed several vessels recently transited the strait, including LNG tankers headed to Pakistan, China, and India, along with a supertanker carrying Iraqi crude to China after months stranded in the Gulf.

Analysts said markets remain highly sensitive to developments surrounding ceasefire talks and regional military activity.

“We are still waiting for more details on a potential deal,” UBS analyst Giovanni Staunovo said. “Meanwhile we see renewed tensions in the Middle East, while flows through the Strait remain restricted.”

The U.S. strikes occurred while Iranian officials were in Doha meeting with Qatari mediators in an effort to revive negotiations over a temporary framework that could reduce hostilities and reopen shipping routes while broader talks continue.

Meanwhile, maritime security concerns remain elevated. United Kingdom Maritime Trade Operations reported that a tanker near Oman experienced an external explosion close to the vessel’s waterline.

The ongoing conflict and supply disruptions continue to raise concerns about inflation and economic growth worldwide, as higher energy prices increase pressure on consumers and central banks.

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“We have so many headlines back and forth, it’s hard to keep up,” said Phil Flynn, senior analyst with Price Futures Group. “The story now is Iran will deliver the uranium for the lifting of sanctions. But they keep changing the news before the ink is dry on the newspaper.”

Diplomatic activity intensified on Friday. A source in Islamabad told Iran’s IRNA news agency that Pakistan’s army chief had traveled to Iran, while a senior Iranian official told Reuters that gaps between Washington and Tehran had narrowed.

U.S. Secretary of State Marco Rubio also pointed to tentative progress. “There’s been some progress. I wouldn’t exaggerate it. I wouldn’t diminish it,” Rubio said after a NATO ministers’ meeting in Sweden. “There’s more work to be done. We’re not there yet. I hope we get there.” Rubio added that the United States remains in constant communication with Pakistan, which is helping mediate the negotiations.

Still, major disagreements remain over Iran’s uranium stockpile and future control of the Strait of Hormuz.

“I think we’re very much subject to the headlines,” said John Kilduff, partner at Again Capital. “We seem headed for a resolution, but the level of clarity is spectacular.”

Analysts warned that global oil inventories continue to tighten as shipping through Hormuz remains severely constrained. “Global oil inventories have been depleting at an alarming pace as oil flows via the Strait of Hormuz slow to a trickle,” said PVM Oil Associates analyst Tamas Varga. He added that recurring optimism about a near-term truce, combined with bearish rhetoric whenever Brent approaches $110 a barrel, has prevented prices from moving significantly higher.

Separately, a Qatari delegation arrived in Tehran on Friday in coordination with the United States to support ongoing negotiations, according to a Reuters source familiar with the discussions.

Six weeks into the fragile ceasefire in the U.S.-Israeli conflict with Iran, elevated oil prices continue fueling concerns about inflation and global economic growth.

Research firm BMI, a unit of Fitch Solutions, raised its 2026 Brent crude forecast to $90 a barrel from $81.50, citing persistent supply deficits, damage to Gulf energy infrastructure, and an expected six-to-eight-week recovery period even after hostilities end.

Before the conflict, roughly 20% of global oil and liquefied natural gas shipments passed through the Strait of Hormuz. The war has removed an estimated 14 million barrels per day of oil supply from global markets, including exports from Saudi Arabia, Iraq, the UAE, and Kuwait. Abu Dhabi National Oil Company has warned that full oil flows through the strait may not return before early or mid-2027, even if the conflict ends immediately.

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