Brent crude posted its largest monthly drop in six years for May, driven by market bets that U.S.-Iran negotiations will lead to the reopening of the Strait of Hormuz, pushing oil prices lower. However, Helima Croft, Head of Commodity Research at RBC Capital Markets, issued a warning in a recent report: a severe divergence has emerged between current oil price trends and supply realities. Global inventories are being drawn down at a record pace, and without substantive progress in the situation, the period from June to August this year will pose a severe stress test for the crude oil market.
According to reports, former U.S. President Trump stated on social media on Friday, May 29th, that he was about to hold a meeting in the White House Situation Room to make a final decision regarding Iran. The news further dampened market sentiment. WTI crude fell 1.73% that day to close at $87.36 per barrel; Brent crude fell 1.77% to close at $92.05. For the entire month of May, Brent crude fell over 19%, marking its worst monthly performance since March 2020 when the COVID-19 pandemic hit the global economy; WTI fell nearly 17% in May, its worst monthly record since April 2025.
However, Trump also listed a series of conditions that Tehran has historically refused to accept: Iran must commit to never possessing nuclear weapons, immediately and unconditionally open the Strait of Hormuz for two-way traffic without imposing tolls, clear all remaining mines in the Strait, and allow the U.S. to excavate and destroy enriched uranium buried in the rubble following airstrikes. According to CNBC, citing U.S. officials, negotiators have reached a framework for a 60-day memorandum of understanding (MOU) covering an extended ceasefire and arrangements for negotiations on Iran's nuclear program, but it still requires Trump's final signature.
Croft wrote in the report that she does not rule out some form of MOU ultimately taking shape, but "when it comes to a substantive agreement, the current headlines and their impact on oil prices have clearly run ahead of reality." She reminded investors that reports of an "imminent agreement" have surfaced multiple times before—it has been over three weeks since the first related news broke, during which Iran has lost nearly 300 million barrels of production capacity. In her view, the market has repeatedly been convinced by news that "the situation is about to end," abandoning pricing for the worst-case scenarios, while selectively forgetting the persistent diplomatic stalemate and repeatedly escalating military conflicts. This, she argues, is the fundamental reason the true crisis has been masked until now.
The market is stuck in "Memento"-style trading, where the deal narrative overrides reality.
Croft used a "Memento"-style mentality to describe the current market trading logic in her report—whenever news of an "imminent agreement" appears, the market treats it as a decisive breakthrough, while selectively forgetting the ongoing diplomatic stalemate, fundamental disagreements on nuclear issues, and repeatedly escalating military friction between the two sides.
This pattern has repeated itself this week. Just hours after the latest round of oil price declines driven by an Axios report, new reports emerged that Iran had again fired missiles at several vessels whose passage was not coordinated with the IRGC. On Thursday, U.S. forces intercepted four Iranian drones in the Strait of Hormuz and struck Iranian military positions near Bandar Abbas, to which the IRGC responded with ballistic missile attacks on a U.S. base in Kuwait; the missiles were successfully intercepted by Kuwaiti forces. On Monday, U.S. forces also struck two vessels laying mines in the Strait and an air defense position in Bandar Abbas.
Croft believes that February 27, 2026, may prove to be the peak for Strait of Hormuz tanker traffic in the foreseeable future. Any ceasefire outcome that leaves actual control of the Strait of Hormuz with Iran will result in transit volumes significantly below historical norms.
Inventory drawdowns accelerate, potentially reaching historically dangerous lows by October.
While the deal narrative dominates price movements, RBC's data reveals a fundamental reality that is deteriorating at an accelerating pace.
The crisis has entered its third month, and the ongoing drain on global inventories from Middle Eastern supply disruptions is becoming increasingly prominent. Croft calculates that if the current six-week average drawdown rate continues, inventory cover days—measured as onshore crude inventories relative to refinery throughput—could fall to the 30-40 day range before October. This would be the lowest level in RBC's dataset since its establishment in 2016. Falling below this threshold could jeopardize normal industry operations due to logistical bottlenecks and insufficient feedstock supply.
Notably, the initial impact of the crisis was relatively contained due to ample starting inventory levels and coordinated releases of strategic petroleum reserves (SPR) by various countries, which cushioned the immediate effect of this historically large supply shock to some extent. However, Croft points out that these "energy shock absorbers" are depleting rapidly. RBC also anticipates that the inventory drawdown rate will accelerate further in the coming weeks, potentially bringing the crisis point forward compared to expectations. Furthermore, due to limited visibility into market data from other countries, the current reported inventory declines may be systematically underestimated, meaning the actual situation could be tighter than the known data suggests.
Based on this analysis, Croft concludes: in the absence of any substantive breakthrough, RBC is confident that June to August will constitute a severe stress test for the crude oil market—"a market that has so far been avoiding pricing the worst-case scenario by convincing itself." She wrote:
"Time is running out. The window to reopen the Strait of Hormuz and avoid a hard landing is closing fast."
The difficulty of implementing a deal: triple hurdles of logistics, insurance, and sanctions.
Even if the U.S. and Iran ultimately sign an extended ceasefire MOU, RBC believes it will be difficult to achieve a substantive, rapid recovery of traffic through the Strait of Hormuz.
From an operational perspective, even if more vessels are permitted to transit, initial operations will likely be limited to one-way traffic, increasing the logistical complexity of clearing the shipping lane. Given the persistent threat from missiles, drones, and mines, Croft finds it hard to foresee how many Western shipping companies would be willing to risk returning to this route based solely on a 60-day MOU. Extremely high insurance premiums, coupled with legal obstacles related to making payments to or coordinating passage with IRGC-linked entities under the U.S. sanctions framework, further constrain the practical options for shipowners. Shipping industry experts have noted that an Iran-led reopening plan likely means limited transit volumes, and full recovery of the Strait may require the clear military defeat of Iranian forces and the establishment of unrestricted passage as a precondition.
Meanwhile, the accelerated development of alternative overland transport routes via the UAE and Saudi Arabia's continued high utilization of the East-West Pipeline have become practical adaptations to the new reality in the Gulf region.
Croft also raises a strategically significant question: are there forces within Iran inclined to maintain the current status quo of "no war, no peace, and a trickle of oil"? These forces may judge that as summer approaches and the economic cost of inventory depletion becomes harder to mask through public relations management, Iran's negotiating leverage will naturally strengthen. Although the dual blockades have clearly strained the Iranian government's finances and oil & gas operational efficiency, reports indicate Iran is still selling previously sanctioned oil through waivers and generating revenue from Strait of Hormuz transit fees.
More notably, despite the current hyperinflation being far more severe than in January of this year, the Iranian government has reportedly not faced a new wave of large-scale protests to date, and the IRGC is said to have used the ceasefire period to rebuild some military capabilities—perhaps indicating that hardliners in Tehran believe time is on their side.
Comments