By: Bruno Santos, Market Intelligence Analyst
The most actively traded Brent contract closed lower on Wednesday (20), at USD 107.34/bbl (-8.8%), following Donald Trump's statement that negotiations with Iran were in the "final stages."
The price decline over the past two days was triggered by verbal indications of diplomatic progress. On Tuesday (19), JD Vance stated "significant progress" in talks, and on Wednesday, Trump suggested a deal was close. The immediate impact was a compression of the geopolitical risk premium embedded in the futures curve, as investors recalibrated expectations for the potential resumption of flows through the Strait of Hormuz.
On Thursday morning (21), Brent is trading at USD 107.4/bbl (+2.2%), and WTI at USD 100.97/bbl (+2.8%), correcting some of the losses from the previous day. Oil futures are recovering because, despite diplomatic progress, Tehran and Washington remain without a formal peace agreement.
Meanwhile, Iran's announcement yesterday of the creation of an authority to control the Strait of Hormuz, coupled with confirmation from Iran’s Supreme Leader that enriched uranium stockpiles will remain in the country, contributed to the rebound at the start of this session.
Iran announced the creation of a "Persian Gulf Strait Authority," formalizing a controlled maritime zone and requiring transit authorization, potentially with tariffs—a move Washington has already rejected. Yesterday, two Chinese supertankers carrying roughly 4 million barrels exited the Persian Gulf through the Strait of Hormuz, along with a South Korean tanker that crossed the strait in mutual agreement with Tehran.
Why this matters: Selective reopening to "friendly nations" fragments access to the strait, directly affecting physical flows. In the short term, this measure marginally eases pressure on oil flows, but in the medium term, it institutionalizes an Iranian mechanism to control transit—a stance deemed unacceptable by Washington, which could stall any agreement and push prices higher.
Overview: Before the conflict, 140 ships crossed Hormuz daily. Today, the daily average is about 26 vessels, 20% below pre-conflict levels.
What to expect: If Pakistan manages to bring Washington and Tehran closer in the coming days and there is concrete signaling of unrestricted reopening of Hormuz, Brent could drop below USD 100/bbl again, eliminating part of the residual premium.
The EIA data released yesterday showed a reduction of 7.9 million barrels in U.S. commercial oil inventories for the week ending May 15, more than double the expected 2.9 million. Combined with a record draw of 9.9 million barrels from the Strategic Petroleum Reserve (SPR) during the same week, the total decline reached nearly 18 million barrels.
Why this matters: The accelerated depletion of strategic and commercial inventories signals that the physical market remains far from balanced, with the SPR being utilized as an operational cushion to sustain high exports and domestic consumption in the U.S. This has pushed strategic reserves down to 374 million barrels—the lowest level since July 2024—with the downward trend expected to persist in the coming weeks.
Overview: Commercial oil inventories fell to 445 million barrels, slightly above the 5-year seasonal average but with a sharply declining trajectory.
What to expect? If the EIA confirms total inventories below seasonal averages in the coming weeks, the market is likely to reprice global supply risk, with the U.S. market facing increased pressure due to heightened demand from international buyers.
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WTI and Brent crude are moving to different beats as a possible U.S. Iran deal reshapes the oil market. The two benchmarks are pricing Strait of Hormuz risk in their own ways, and the gap between them says a lot about where crude goes next.
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