U.S. and Iran close to memorandum to end the war
Axios reported that Washington believes it is close to finalizing a memorandum of understanding with Iran to end the war. A Pakistani source directly involved in mediation confirmed the accuracy of the report and stated that the resolution is near.
Why it matters: The prospect of a deal has fueled a dramatic bearish sentiment, with Brent accumulating a nearly 15% drop over two days, reversing part of the geopolitical risk premium built up since the conflict began.
- It’s worth noting, however, that nothing has been signed yet. The market is pricing in a growing probability of the conflict ending and the gradual resumption of oil and derivative exports from the Persian Gulf.
Overview: The memorandum, comprising 14 points, includes: Iran’s commitment to a uranium enrichment moratorium; removal of U.S. sanctions; release of frozen Iranian dollar assets; and the gradual reopening of the Strait of Hormuz by both parties.
- The document would declare the end of the war and initiate a 30-day negotiation period for a detailed agreement on the strait, Iran’s nuclear program, and sanctions.
- Meanwhile, Trump announced the suspension of Operation Freedom, citing "significant progress" in negotiations without detailing the terms.
- Iranian Foreign Minister Abbas Araqchi, during a visit to China, did not publicly confirm the terms but emphasized that Tehran seeks a "fair and comprehensive" agreement.
- According to Axios, Iran has 48 hours to analyze the U.S. proposal and provide a definitive response on the memorandum.
What to expect? The market is likely to continue pricing in signals of a definitive agreement between Washington and Tehran throughout the day, with futures responding to the potential resumption of oil and derivative flows through the Strait of Hormuz.
- In parallel, investors should remain attentive to new developments in negotiations over the next 48 hours. If the response is positive and the document is signed, further price declines are expected in the coming days.
- If negotiations collapse or new Iranian conditions stall the deal, the bullish bias could return sharply, given that physical market fundamentals remain strained, with significant energy commodity deficits in Asia and Europe.
U.S. inventories continue to decline significantly
Preliminary data from the American Petroleum Institute (API) indicates that U.S. crude oil inventories fell for the third consecutive week, highlighting the impact of the Strait of Hormuz blockade on global refining supply. Official data from the Energy Information Administration (EIA) is expected later this Wednesday.
- Crude oil inventories dropped by 8.1 million barrels in the week ending May 1.
- Gasoline inventories fell by 6.1 million barrels during the same period.
- Distillate inventories declined by 4.6 million barrels.
Why it matters: The accelerated decline in U.S. inventories underscores that the supply shock caused by the blockade is real and manifesting in physical market fundamentals. This data serves as a price-supportive factor even in a scenario of advanced negotiations. Even if a deal is reached, supply normalization will take weeks, likely limiting the extent of short-term price drops.
What to expect? The official EIA data, scheduled for release this afternoon, is expected to confirm the downward trend in inventories. If the figures exceed API estimates, bearish sentiment from negotiations could intensify further. If the numbers align with or surpass API projections, the focus will remain on diplomatic negotiations as the main driver for the day.
