Crude Oil
Crude Pulls Back on Diplomacy Hopes, but Hormuz Risks Continue to Anchor the Curve
Crude prices moved lower this week as the market weighed signs of potential progress between the US and Iran. The WTI prompt-month contract settled at $95.42/Bbl on Friday, down $6.52 week over week. While ceasefire conditions in the region have technically held, both countries have exchanged fire in recent days stemming from their respective blockades, with traders increasingly questioning whether a full normalization of flows is achievable in the near term.
Early in the week, prices rallied following renewed tensions in the Gulf and reports tied to Iran’s expanding enforcement activity in the Strait. Markets also reacted to President Trump’s “Project Freedom” initiative, which was framed as a humanitarian effort aimed at helping commercial vessels stranded in the Persian Gulf safely exit the region. However, despite the initial bullish reaction, the market later retraced much of those gains as the White House signaled growing interest in a diplomatic framework agreement with Tehran.
Although headlines surrounding negotiations pressured prompt prices lower midweek, the Cal 2027 and Cal 2028 strips remain near recent highs, signaling ongoing supply concerns further down the curve. Market expectations earlier this spring were largely built around a relatively quick reopening of Hormuz, but those assumptions have increasingly come into question as negotiations appear likely to evolve into a prolonged and complex process rather than a rapid resolution.
At the same time, underlying physical balances continue to tighten. Goldman Sachs analysts estimate global oil inventories have fallen to their lowest level in roughly eight years, with inventory coverage projected to decline further through the end of May. Tightness has become particularly visible across refined products and petrochemical feedstocks, including diesel, jet fuel, naphtha, and LPG markets. On the demand side, Morgan Stanley lowered its second-quarter global oil demand forecast by 3.7 MMBbl/d, citing the cumulative impact of elevated prices and ongoing supply disruptions. However, broader fuel consumption across major economies has remained relatively resilient despite the recent volatility.
With the ceasefire proving increasingly fragile and the timeline for restoring Persian Gulf energy flows highly uncertain, geopolitical headlines continued to drive market direction this week. While diplomacy has reduced some immediate fears of a broader restart to the war, transit through the Strait of Hormuz remains heavily constrained and the physical market continues to appear structurally tight. AEGIS maintains a neutral outlook.