Oil prices bounce off lows, as an Iran peace deal may be just a 'structured pause'

By Myra P. Saefong and Mike Murphy

Hopes grow that oil can again flow through Strait of Hormuz, but it could take a while before a resolution is reached

An Iran deal at this point would simply delay, not end, the world's oil-supply crisis, analysts said.

Global oil prices fell by as much as 12% Wednesday, then pared nearly half of those losses as the market weighed reports of progress toward a U.S.-Iran peace deal and the potential impact on the growing crude-supply crisis in the Persian Gulf.

"We've seen this movie before where the fragile truce fizzles faster than it forms," said Manish Raj, managing director at Velandera Energy Partners. "Today the market decided to sell, but tomorrow will be whole new day."

On Wednesday, Brent crude futures for July delivery (BRNN26) fell by as much a 12% from Tuesday's settlement to trade as low as $96.75 a barrel. They've since recouped some of those declines to be down 6.5% at $102.76 in recent morning trading. June West Texas Intermediate crude (CLM26) was down 6.1% at $96.01.

In a post on Truth Social Wednesday, President Donald Trump said: "Assuming Iran agrees to give what has been agreed to, which is, perhaps, a big assumption, the already legendary Epic Fury will be at an end, and the highly effective Blockade will allow the Hormuz Strait to be OPEN TO ALL, including Iran."

An Iran deal at this point, however, would delay, not end, the world's supply crisis, analysts at Rystad Energy wrote in a note Wednesday.

"The possible peace framework as currently understood involves a moratorium on Iranian nuclear enrichment, sanctions relief, and a 30-day negotiating window, with a gradual reopening of the Strait of Hormuz phased over that same period," said Paola Rodriguez-Masiu, chief oil analyst at Rystad.

"This is not a resolution, it is a structured pause, a distinction that matters enormously for physical barrels," she said.

Even under an optimistic scenario involving a 30-day phased reopening of the Strait of Hormuz, at "meaningful volume recovery" wouldn't happen until June at the earliest, with processing port arrivals lagging by an additional four to six weeks after that, Rodriguez-Masiu said. "Transit-insurance markets need to reprice, vessel operators need verified and sustained access, and commercial confidence cannot be rebuilt overnight."

"Global markets should not mistake a cease-fire headline for a supply headline," she said.

Trump, meanwhile, also said in his Truth Social post that if Iran doesn't agree to the terms of the deal, "the bombing starts, and it will be, sadly, at a much higher level and intensity than it was before."

The moves in oil Wednesday came as Axios reported that the U.S. and Iran were drafting a one-page memo to end the war. The report, citing two U.S. officials and two other sources, said the memo would set a framework for more detailed nuclear negotiations.

Oil futures had already been down, but not by nearly as much, on Trump's announcement of a pause to what's been called Project Freedom, the U.S. naval operation aimed at getting shipping traffic moving through the strait, to allow for talks.

Read more: There's one reason $200-a-barrel oil can't be entirely ruled out

Trump's pause matters "because the market interpreted it not as weakness, but as confirmation that diplomacy may finally be displacing escalation as the dominant macro driver," Stephen Innes, managing partner at SPI Asset Management, wrote in a note late Tuesday. "What makes this move particularly important is that the market was already structurally leaning bullish before the geopolitical temperature cooled."

The plan, which was announced by Trump on Sunday and went into effect Monday, was intended to allow neutral shipping that's been bottled up in the Persian Gulf to move safely through the Strait of Hormuz, ostensibly with U.S. Navy protection. But the move tested the weeks-long cease-fire, with the U.S. reportedly sinking several Iranian boats Monday and Iran attacking U.S. forces, commercial ships and targets in the United Arab Emirates.

See more: This narrow shipping lane is how Trump now wants oil tankers to navigate the Strait of Hormuz

- Steve Goldstein contributed.

-Myra P. Saefong -Mike Murphy

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

05-06-26 1141ET