On Wednesday, oil prices fell approximately 3% after U.S. President Donald Trump reiterated that the war in Iran would conclude "very soon." However, investors remain cautious about the outcome of peace negotiations due to ongoing disruptions to Middle Eastern crude supplies.
Brent crude futures dropped $2.97, or 2.7%, to $108.31 per barrel, while U.S. West Texas Intermediate (WTI) crude futures declined $2.69, or 2.6%, to $101.46 per barrel. Both benchmarks recorded their largest single-day percentage and absolute declines in two weeks.
Emreil Jamil, a research analyst at London Stock Exchange Group, noted, "Even if a deal is reached, oil prices are likely to retain some upside potential as crude supplies may not immediately return to pre-war levels."
On Tuesday, U.S. Vice President J.D. Vance stated that U.S.-Iran negotiations had made progress, causing the two major crude benchmarks to fall by nearly $1. However, Trump simultaneously indicated that the U.S. might need to strike Iran again, revealing that U.S. forces were just one hour away from executing an attack order before the recent strike was postponed.
Citigroup analysts projected on Tuesday that Brent crude prices could rise to $120 per barrel in the near term, arguing that the oil market is underestimating the risk of prolonged supply disruptions. Wood Mackenzie estimated that if the Strait of Hormuz remains largely closed by year-end, oil prices could approach $200 per barrel.
Similarly, PVM analysts highlighted that global crude inventories could fall to critically low levels. PVM stated, "Yet, market participants have recently shown relative indifference—or blind optimism—toward the potential consequences of the conflict."
An indicator reflecting traders' perception of current supply tightness—the premium of Brent contracts for delivery next month versus those for delivery six months later—stands at about $20 per barrel, significantly below last month's peak of over $35.
On Wednesday, two very large crude carriers (VLCCs) exited the Strait of Hormuz, with another vessel, having loaded 6 million barrels of Middle Eastern crude after waiting over two months, also departing. The current number of tankers transiting the strait remains well below the pre-war daily average of approximately 130 vessels.
To compensate for supply shortfalls, countries are relying on commercial inventories and strategic reserves.
Market sources cited American Petroleum Institute (API) data showing U.S. crude inventories fell for the fifth consecutive week last week, with fuel stocks also declining.
A survey indicates that the U.S. Energy Information Administration (EIA) is expected to report a crude inventory draw of about 3.4 million barrels. The agency's weekly data is scheduled for release at 14:30 GMT.
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