Oil prices moved higher in Asian trading on Thursday following a steep drop the day before, as markets balanced emerging diplomatic signals from the Middle East with fresh U.S. inventory figures.
At 21:18 ET (01:18 GMT), Brent futures for July delivery were trading up 0.9% at $102.14 per barrel, while West Texas Intermediate crude for the U.S. contract advanced 1.3% to $96.24 per barrel.
Both benchmarks had plunged by more than 7% on Wednesday after media reports indicated that the United States and Iran were closer to a deal that could reduce regional tensions and potentially reopen oil flows that have been disrupted through the Strait of Hormuz. Axios reported that the White House was close to agreeing with Tehran on a one-page memorandum of understanding aimed at ending the war, and that the U.S. expected a response from Iran within 48 hours. The report characterised the talks as the closest the two sides had come to an agreement since the conflict began.
An Iranian foreign ministry spokesperson, cited by Iran’s ISNA news agency, said Tehran would communicate its response to the U.S. proposal.
Market sensitivity to developments affecting the Strait of Hormuz has been pronounced given the chokepoint's importance - roughly a fifth of global oil trade passes through the waterway. Any resolution that might restore disrupted flows would be seen as easing a key source of oil-market risk, a factor that helped drive the prior session's sell-off.
Offsetting some of Thursday's gains were weekly U.S. inventory figures from the Energy Information Administration. The EIA reported that U.S. commercial crude oil inventories, excluding the Strategic Petroleum Reserve, fell by 2.3 million barrels in the week ended May 1, leaving stocks at 457.2 million barrels. Analysts had been expecting a larger draw of 3.4 million barrels.
The EIA also reported declines in other product stocks: gasoline inventories dropped by 2.5 million barrels, while distillate stockpiles - which include diesel and heating oil - fell by 1.3 million barrels. The data further showed strong petroleum exports from the United States, a sign of continued demand for U.S. supplies amid ongoing disruptions to Middle East energy flows.
Traders and analysts continued to monitor both diplomatic developments and domestic inventory dynamics for signals on near-term supply and demand balances. While the reported U.S.-Iran discussions suggested a path to reduced regional tensions, the EIA's smaller-than-expected crude draw and robust export levels indicated that U.S. supply-demand conditions remained an important counterweight to the geopolitical narrative.
Summary
Oil prices recovered slightly after a sharp decline driven by reports that the U.S. and Iran may be nearing a memorandum of understanding. At the same time, EIA data showed a 2.3 million barrel drop in U.S. commercial crude stocks for the week ended May 1 - smaller than the expected 3.4 million barrel draw - along with declines in gasoline and distillate inventories and strong petroleum exports.
Key points
- Brent July futures rose 0.9% to $102.14 per barrel; WTI advanced 1.3% to $96.24 per barrel as of 21:18 ET (01:18 GMT).
- Reports suggested Washington and Tehran were nearing a one-page memorandum of understanding, raising hopes of easing tensions that have disrupted flows through the Strait of Hormuz.
- EIA data showed U.S. commercial crude stocks fell by 2.3 million barrels in the week ended May 1, with gasoline down 2.5 million barrels and distillates down 1.3 million barrels; exports remained strong.
Risks and uncertainties
- Uncertainty over the outcome and timing of U.S.-Iran talks - if Tehran's response or negotiations do not lead to an agreement, market risk premia related to Middle East flows could persist, affecting global oil supply and shipping sectors.
- Variability in U.S. inventory data versus expectations - smaller-than-expected draws, as reported by the EIA, can temper price gains despite geopolitical developments, impacting refining margins and fuel markets.
- Ongoing disruptions to Middle East energy flows - continued interruptions would support demand for U.S. exports and maintain elevated attention on shipping routes and insurance costs for tankers transiting the region.
Tags: oil, inventories, energy, geopolitics