Market rebound
Oil prices recovered on Thursday after two consecutive sessions of losses, with concerns about disrupted supply and shrinking inventories bringing buyers back into the market. By 0055 GMT, Brent crude futures had gained 81 cents, or 0.77%, to $105.83 a barrel, while U.S. West Texas Intermediate futures were up 97 cents, or 0.99%, at $99.23.
Trigger for the recent volatility
Both crude benchmarks had fallen more than 5.6% on the previous trading day following comments by U.S. President Donald Trump that negotiations with Iran were in the final stages. The president also warned of further attacks if Iran did not agree to a peace deal. Those developments initially suggested the possibility of a diplomatic breakthrough, which contributed to the sharp drop in prices.
Geopolitical backdrop in the Strait of Hormuz
Iran responded by cautioning against additional attacks and by taking steps that cement its control over the Strait of Hormuz. Before the war, the waterway carried oil and liquefied natural gas shipments equivalent to about 20% of global consumption; it has been mostly closed amid the conflict. On Wednesday, Iran announced the formation of a new "Persian Gulf Strait Authority" and said it would establish a "controlled maritime zone" in the Strait of Hormuz.
Iran effectively closed the strait in retaliation for U.S. and Israel attacks that began the war on February 28. Most fighting has stopped since an April ceasefire, but traffic through Hormuz remains limited by Iran while the United States maintains a blockade of its coastline.
Impact on inventories
The supply disruptions originating in the key Middle Eastern region have forced consuming countries to draw down both commercial and strategic inventories at an accelerated pace, increasing concerns about depletion. The U.S. Energy Information Administration reported a nearly 10 million barrel withdrawal from the Strategic Petroleum Reserve last week, the largest drawdown on record.
The EIA also said commercial crude stocks fell by 7.9 million barrels to 445 million barrels over the same week, a much larger reduction than the 2.9 million-barrel draw analysts had expected in a Reuters poll. Gasoline inventories declined by 1.5 million barrels, while distillate stocks rose by 372,000 barrels.
Analyst perspectives
Market participants and analysts pointed to the interplay between diplomatic signals and tangible inventory data as the driver of the recent price swings. Yang An, an analyst at Haitong Futures, said: "The sharp drop in oil prices appears to be pricing in the possibility of a breakthrough in the talks." Yang added that if the U.S. president "insists on making no concessions to Iran, an agreement seems unlikely, and the final outcome of the negotiations could reverse sharply."
Mingyu Gao, chief researcher for energy and chemicals at China Futures, emphasized the inventory implications: "The drawdown in oil inventories will make it difficult for oil prices to remain low." Gao warned that "with the Strait of Hormuz blocked, global refined-product and onshore crude inventories are expected to fall below their lowest levels for this time of year in the past five years by late May and late June."
Outlook and market sensitivity
The combination of an uncertain diplomatic trajectory in negotiations with Iran and concrete inventory draws has returned upward pressure to crude prices after a short-lived decline. Market participants remain focused on further developments around the Strait of Hormuz, any shifts in negotiation stances, and subsequent inventory reports that could confirm ongoing depletion or stabilization of global stockpiles.
Summary takeaways
- Brent and WTI both rose on Thursday after two days of losses tied to the unsettled outlook over an Iran peace deal and sizable U.S. inventory draws.
- Supply disruptions around the Strait of Hormuz and heavy withdrawals from U.S. strategic and commercial stocks are central to recent market moves.
- Analysts note that diplomatic developments and continued inventory reductions could rapidly reverse price direction.