Brent crude futures settled down $2.44, or 2.3%, at $102.58 a barrel, while U.S. West Texas Intermediate crude fell $1.91, or 1.9%, to close at $96.35 a barrel. Both benchmarks ended at their lowest levels in nearly two weeks.
Earlier in the session, prices surged as much as 4% after Iran’s supreme leader had issued a directive that reduced hopes for a swift diplomatic resolution to the war. The report, citing two senior Iranian officials, suggested Tehran was hardening its position on a key U.S. demand, the removal of the enriched uranium. The directive from Supreme Leader Ayatollah Mojtaba Khamenei could further complicate negotiations and undermine President Donald Trump’s efforts to broker an end to the conflict.
Later Thursday, Trump said the United States would eventually recover Iran’s stockpile of highly enriched uranium, which Washington believes is intended for nuclear weapons development, though Tehran insists the program is purely peaceful.
The latest developments followed Iran’s announcement of a new “Persian Gulf Strait Authority,” which would oversee a “controlled maritime zone” in the Strait of Hormuz.
Trading remained choppy throughout the day. Prices initially climbed further after U.S. Secretary of State Marco Rubio said a proposed tolling system for ships transiting the strait would make a diplomatic agreement impossible. Markets later reversed lower after Rubio said Pakistani officials acting as mediators would travel to Iran for further talks.
“We’ve been in this situation multiple times before, which ultimately led to disappointment,” ING analysts said in a note, forecasting average Brent crude prices of around $104 a barrel this quarter.
Separately, UBS raised its oil price forecasts by $10 a barrel, projecting Brent crude at $105 and WTI at $97 by September.
Iran also warned against additional attacks and moved to strengthen its control over the Strait of Hormuz, which remains mostly closed. Before the war, the waterway carried oil and liquefied natural gas shipments equivalent to roughly 20% of global consumption.
Broader economic concerns also weighed on sentiment. Surveys released Thursday showed euro zone economic activity contracted at its fastest pace in more than two-and-a-half years in May, as higher energy costs fueled inflation, weakened consumer demand, and accelerated layoffs.
Meanwhile, seven leading OPEC+ producers are likely to approve a modest increase in July oil output at their June 7 meeting.
International Energy Agency chief Fatih Birol warned that peak summer fuel demand, combined with limited Middle Eastern exports and shrinking inventories, could push global oil markets into a “red zone” during July and August.
Abu Dhabi National Oil Company CEO Sultan Al Jaber said that even if the conflict ended immediately, oil flows through the Strait of Hormuz would likely not fully recover until 2027.
In the United States, the Energy Information Administration reported Wednesday that nearly 10 million barrels were withdrawn from the Strategic Petroleum Reserve last week — the largest drawdown on record. U.S. crude inventories also fell more sharply than expected.
Separately, Richmond Federal Reserve President Thomas Barkin said ongoing inflation pressures tied to geopolitical shocks could eventually force the Federal Reserve to consider additional interest rate hikes depending on how businesses and consumers respond.