By: Bruno Santos, Market Intelligence Analyst
Yesterday (19), the most actively traded Brent contract closed lower at USD 111.28/bbl (-0.73%), after reaching its highest level since May 5 in the previous session. June WTI — the contract that expired during the session — ended at USD 107.77/bbl (-0.82%), while July, the more actively traded reference, fell to USD 104.15/bbl.
The bearish move was triggered by statements from Vice President JD Vance, indicating progress in talks with Iran and a lack of appetite for military escalation from either side, leading to a reduction in risk premiums in short-term contracts and partial unwinding of long positions. The response was immediate but limited, as the market acknowledges that any diplomatic easing does not translate into a short-term supply rebound.
This morning (20), Brent is trading down an additional 1.7%, at USD 109.5/bbl. Recent comments from Donald Trump — including confirmation that the Middle East war would “end soon” — are contributing to a reduction in risk premiums at this moment, despite the lack of tangible measures to advance diplomatic negotiations.
Over the past few days, negotiations progressed enough for Trump to postpone an attack initially planned for Tuesday, but not enough to eliminate threats, as the U.S. president signaled that offensives could resume in "a few days" if no agreement is reached. Tehran, on the other hand, presented a proposal including an end to hostilities, withdrawal of American forces, war reparations, and lifting of the naval blockade — terms Washington had rejected the previous week.
Why This Matters: The key channel of impact is the geopolitical risk premium, which is declining even amid significant uncertainty regarding the credibility of the negotiations, anchored largely on Trump’s latest remarks. Structurally, the bias remains bullish, given the fragile physical balance and lack of concrete measures to reopen the Strait of Hormuz.
Outlook: The Strait of Hormuz remains effectively closed to regular traffic; only two supertankers exited the strait this Wednesday, compared to around 130 daily transitions typical before the war.
What to Expect: If negotiations advance to a formal round before the end of the week, the immediate risk premium could drop another USD 3–5/bbl, though the market is likely to maintain elevated floors until the strait reopens. Conversely, any resumption of military action — a scenario Trump explicitly kept on the table — could trigger a new, faster price rally.
U.S. strategic reserves recorded a historic withdrawal of 9.9 million barrels last week, reducing the SPR to approximately 374 million barrels — its lowest level since July 2024. Commercial crude inventories are expected to show an additional decline of around 3.4 million barrels, according to surveys, with EIA data anticipated later today.
Why This Matters: The pace of SPR usage signals that the U.S. is absorbing part of the supply shock through strategic reserves, which is a limited-term solution. Each week of withdrawals at this magnitude narrows the room for maneuver in U.S. policy and increases domestic political pressure for a diplomatic resolution.
Outlook: U.S. commercial crude inventories have been decreasing for at least five consecutive weeks, according to API data released yesterday.
What to Expect: If the EIA confirms a decline close to or exceeding 3.4 million barrels today, the market is likely to interpret the data as additional price support, especially in the absence of diplomatic resolution. With the SPR being depleted at a record pace, the sustainability of this policy is limited in the medium term — which tends to keep prices elevated in the interim.
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