Crude Oil
Markets Price in Growing Odds of a US-Iran Agreement
Crude prices trended lower this week as markets grew increasingly optimistic that the US and Iran could reach a diplomatic agreement. While physical disruptions through the Strait of Hormuz remain significant, improving expectations for a deal weighed on geopolitical risk premiums throughout the week. On Friday, WTI settled at $84.88/Bbl, down from $90.54/Bbl the previous Friday as traders began pricing in the possibility of an eventual recovery in Gulf oil exports.
Early in the week, crude prices found support as traders assessed a fragile ceasefire between Iran and Israel. While both sides signaled interest in avoiding further escalation, officials continued to warn of retaliation if hostilities resumed. President Trump repeatedly stated that negotiations with Iran were nearing completion, while regional tensions remained elevated following military exchanges and renewed threats involving Lebanon and the Red Sea.
Meanwhile, physical disruptions continued to weigh on global oil markets. Energy flows through the Strait of Hormuz remain significantly constrained, forcing refiners and importers to seek alternative supplies. The impact has been particularly visible in Asia, where reduced access to Middle Eastern crude contributed to a sharp decline in Chinese imports. According to Bloomberg, China's May crude imports fell to approximately 7.8 MMBbl/d, down from an average of roughly 11.6 MMBbl/d in 2025. Chinese refiners have responded by reducing refinery runs, trimming fuel exports, and drawing on strategic petroleum reserves to offset supply shortfalls. Shell CEO Wael Sawan warned that the closure of the Strait of Hormuz has already removed an estimated 1.2 BBbls from global supply balances and suggested it could take up to a year for markets to fully rebalance once flows resume.
By the end of the week, optimism surrounding a potential agreement gained momentum after President Trump suggested a peace deal could be reached as soon as this weekend, while Iranian Foreign Minister Abbas Araghchi said a memorandum of understanding between the two sides had "never been closer." Although Iranian officials emphasized that key differences remain unresolved, markets increasingly interpreted the latest developments as evidence that both sides are moving toward a compromise.
While significant uncertainty remains and physical disruptions continue, improving diplomatic signals increasingly outweighed geopolitical concerns this week, pressuring crude prices lower. AEGIS maintains a neutral outlook.