Oil prices fell by approximately 3% on Thursday as investors anticipated a potential resolution to the U.S.-Israeli conflict with Iran, following a ceasefire agreement between Israel and Lebanon. This development has raised hopes for a deal involving Washington and Tehran, potentially reopening the crucial Strait of Hormuz.
Brent crude futures decreased by $2.78, or 2.84%, settling at $95.03, while U.S. West Texas Intermediate crude fell by $2.98, or 3.1%, to $93.04. The market's optimism about a resolution overshadowed concerns about supply disruptions. The ceasefire between Israel and Lebanon is seen as a step towards resuming U.S.-Iran peace talks.
The recent hostilities in the Middle East, including Iranian attacks on Kuwait and U.S. military actions near the Strait of Hormuz, had previously driven oil prices up by about 2% on Wednesday. However, the ceasefire news reversed these gains. Shipping traffic in the Strait remains largely halted, though some repositioning of ships suggests an anticipated reopening.
“Once again, the market is giving full credit to hopes of a resolution here and the worries about supplies are just not registering with the market.”
John Kilduff, partner at Again Capital
In the U.S., the House of Representatives passed a resolution to prevent further military action against Iran, though it requires Senate approval and a two-thirds majority to override a likely presidential veto. Meanwhile, Russian oil production has declined due to unplanned refinery maintenance, marking the first official acknowledgment of this drop.
U.S. crude stockpiles saw a significant decrease of 8 million barrels to 433.7 million barrels for the week ending May 29, surpassing analysts' expectations of a 4 million-barrel draw. Iranian oil prices have slipped into discounts for the first time since April, while Russian crude premiums have eased amid sluggish demand from Chinese buyers.
“Crude futures are reversing yesterday's gains and then some on news that Israel and Lebanon have entered a peace deal, which should allow U.S. and Iran peace talks to continue.”
Dennis Kissler, senior vice president of trading at BOK Financial
Background
The Strait of Hormuz is a critical chokepoint for global oil shipments, and its closure due to geopolitical tensions has historically led to significant market volatility. The current developments in the Middle East could have far-reaching implications for global oil supply and prices.
OPEC maintains its forecast for robust oil demand growth despite the ongoing Middle East conflict and the closure of the Strait of Hormuz. The market will closely watch developments in the region and the potential reopening of the Strait, which could significantly impact oil prices in the coming weeks.
