Crude Oil
Crude Holds Firm as Diplomacy Fails to Ease Structural Supply Concerns
Crude prices rose this week as the US-Iran headlines paused with President Trump’s visit to China. The WTI prompt-month contract settled at $105.42/Bbl on Friday, up $10.00 week over week. While ceasefire conditions technically remain in place, negotiations between Washington and Tehran showed little progress, reinforcing concerns that disruptions to flows could persist beyond the near term.
The week centered around President Trump’s trip to China and meetings with Chinese Leader Xi Jinping, where both leaders publicly emphasized the importance of reopening the Strait of Hormuz. However, the summit produced few concrete developments toward resolving the conflict. Earlier in the week, Trump rejected Iran’s latest peace framework, while Tehran continued to demand broad sanctions relief, security guarantees, and special influence over Hormuz, conditions that remain outside Trump’s current negotiating parameters.
Iranian Foreign Minister Abbas Araghchi underscored the challenges facing negotiations, stating that both parties had agreed to postpone discussions surrounding Iran’s stockpile of highly enriched uranium because the issue was “very complicated.” Meanwhile, shipping activity through Hormuz remains heavily constrained despite isolated reports of limited tanker movements.
At the same time, underlying physical balances continue to tighten. The IEA estimated that global observed crude and product inventories declined by roughly 4 MMBbl/d across March and April, while the EIA’s May STEO significantly lowered its global oil balance outlook. The agency now expects global inventories to decline by 2.6 MMBbl/d in 2026, compared with a 0.3 MMBbl/d decline in the prior report, reflecting expectations for a longer-lasting disruption scenario and a slower normalization in Hormuz flows.
On the demand side, the IEA lowered its global oil demand forecast for a third consecutive month, projecting a 2.45 MMBbl/d decline in 2Q26 consumption as elevated prices and disrupted trade flows pressure economic activity. Even so, some analysts argue that recent weakness in physical purchasing activity may reflect deferred buying decisions, refinery maintenance adjustments, and temporary inventory releases rather than outright demand destruction.
While diplomatic efforts have reduced some immediate fears of a broader regional war, significant uncertainty surrounding the reopening of Hormuz remains. Physical balances and inventories are tightening, and the Cal 2027 strip is rising as it prices in a prolonged conflict rather than a temporary geopolitical shock. AEGIS maintains a neutral outlook.