Crude Oil
Crude Pulls Back as Diplomacy Gains Momentum, Though Physical Tightness Persists
Crude prices cooled this week as traders weighed the possibility of a diplomatic breakthrough between the US and Iran. While geopolitical risk remains elevated, the absence of a major escalation and renewed negotiations pressured prices lower throughout the week. On Friday, the WTI prompt-month contract settled at $96.60/Bbl, down $8.82 from last week’s settlement.
Early in the week, President Trump announced that another major offensive strike against Iran would be put on hold. The UAE, Qatar, and Saudi Arabia have all reportedly urged the US to give diplomacy another chance, fearing renewed military action could trigger additional economic disruption across the region. Still, conflicting headlines continued to drive choppy price action throughout the week. Reuters reported that Iran’s Supreme Leader, Ayatollah Mojtaba Khamenei, has prohibited the transfer of Iran’s enriched uranium stockpile abroad, underscoring how far apart both sides remain on key nuclear issues. At the same time, five Middle Eastern countries formally rejected Iran’s proposed Persian Gulf Authority, which would grant Tehran greater control over traffic through the Strait of Hormuz. Secretary of State Marco Rubio said there had been “slight progress” in negotiations, though both Washington and Tehran continue to resist major concessions surrounding nuclear capabilities and any potential Hormuz tolling system.
Meanwhile, Goldman Sachs estimated global visible oil inventories have declined by a record 8.7 MMBbl/d so far in May, nearly double the average draw pace seen since the conflict began. Domestically, US crude inventories, including the Strategic Petroleum Reserve, fell by a record 17.8 MMBbls last week. US crude exports have surged to 5.6 MMBbl/d, roughly 40% above pre-conflict levels, while Cushing inventories have declined for four consecutive weeks toward minimum operating levels as Midwest refiners pull barrels ahead of peak summer demand.
Although the ceasefire remains in place and diplomacy continues, the path toward a lasting resolution remains uncertain. There appears to be little appetite for another major military escalation, but even a negotiated agreement may not immediately restore Hormuz flows to pre-conflict levels. As inventory buffers continue to erode, the market increasingly appears to be pricing in tighter medium-term conditions rather than a quick return to oversupply. The futures curve remains in backwardation, signaling ongoing prompt supply tightness, while the Cal 2027 strip holding near $75/Bbl reflects growing expectations that a higher-for-longer pricing regime could persist beyond the immediate conflict window. AEGIS maintains a neutral outlook.