On Wednesday, Eastern U.S. time, the international crude oil futures market was sharply impacted by a statement from U.S. President Donald Trump.
During early U.S. trading, data released by the Energy Information Administration (EIA) under the U.S. Department of Energy showed that U.S. crude oil inventories experienced a record weekly decline of 17.8 million barrels, far exceeding market expectations. Coupled with U.S. crude oil exports reaching a historic high, this initially fueled concerns about further tightening in global supply.
Following the EIA data release, international crude oil prices, which had fallen over 4% prior to the announcement, temporarily pared some losses. However, subsequent reports indicated that Trump stated U.S.-Iran negotiations were in their "final stages," leading to a rapid unwinding of market risk premiums and a sharp expansion in oil price declines.
At their session lows in early U.S. trading, the U.S. WTI July contract fell to $97, down nearly 6.9% for the day. Brent crude dropped to $103.24, declining over 7.2% intraday, marking its largest single-day drop in nearly two weeks.
This abrupt shift in market sentiment highlights that current oil trading logic is now entirely dominated by Middle East developments: any news regarding the reopening of the Strait of Hormuz or progress in Iran negotiations is sufficient to instantly reverse the previous rally driven by supply fears.
A record inventory draw should, in theory, be highly bullish.
From a fundamental perspective, the EIA data was actually extremely supportive.
The data revealed that total U.S. crude oil inventories, including the Strategic Petroleum Reserve (SPR), plunged by 17.8 million barrels last week, with SPR releases accounting for approximately 9.9 million barrels of that draw. Commercial crude inventories also fell by 7.9 million barrels from the previous week, marking the fourth consecutive weekly decline and far exceeding analyst expectations of a roughly 2.9 million barrel decrease. Simultaneously, U.S. crude oil exports surged to a record high of 5.6 million barrels per day.
Adding to market tension, inventories at Cushing, Oklahoma—the delivery point for WTI—declined for the fourth consecutive week, moving closer to the so-called "tank bottoms" level.
Wall Street widely views this as a sign that the U.S. is gradually losing its capacity to act as the global crude oil market's "final buffer."
Many traders had previously bet that if Strait of Hormuz transit remained restricted while U.S. inventories continued to fall rapidly, the global crude market could soon enter a state of "extreme shortage."
Consequently, immediately after the EIA data release, oil prices briefly pared losses. Brent crude recovered above $107.40, down less than 3.5% for the day, while WTI moved back above $100.90, down less than 3.1% intraday.
However, it was Trump's remarks that ultimately dictated market direction.
Yet, within just minutes, the market's trading logic was completely rewritten.
Trump stated on Wednesday that U.S. negotiations with Iran had entered their "final stages" and reiterated that the conflict would end "very quickly." Concurrently, media reports indicated that some oil tankers had begun transiting the Strait of Hormuz again.
According to reports, Iran's Islamic Revolutionary Guard Corps Navy stated that over the past 24 hours, 26 vessels, including oil tankers, container ships, and other merchant ships, had passed through the Strait of Hormuz in coordination with Iran. Furthermore, a Xinhua report early Wednesday cited British shipping media, which referenced tracking data on social media stating that at least 54 ships crossed the Strait of Hormuz from May 11 to 17, compared to only 25 the previous week.
These shipping updates regarding the Strait of Hormuz quickly struck at the core logic that had previously supported the oil price surge—the prolonged closure of Hormuz.
Over the past few weeks, the market's greatest fear was that the Iran conflict could lead to a long-term blockage of the Strait of Hormuz. The strait handles approximately one-fifth of global crude oil shipments. A sustained closure would subject the global energy market to the most severe supply shock in decades.
Now, as the market begins to rep price the possibility of "de-escalation" and even "resumed transit through the strait," the previously inflated geopolitical risk premium is rapidly unwinding.
Phil Flynn, an analyst at Price Futures Group, noted that the market is trading on expectations that "peace talks reduce the probability of further U.S. military action."
Wall Street: This is More Like "Bubble Squeezing," Not a Trend Reversal
Despite the sharp intraday decline in oil prices on Wednesday, most Wall Street institutions have not completely turned bearish.
Many firms view this drop more as a rapid deflation of the previous "war premium" rather than a true end to the supply crisis.
Analysts cited in media reports noted that global crude oil supply remains extremely tight, and the resumption of transit through the Strait of Hormuz is still very limited, with current tanker traffic far below pre-conflict levels.
Wood Mackenzie even warned that if the Strait of Hormuz were to experience another large-scale closure, oil prices could surge towards $200.
Citigroup believes that against the backdrop of continued global inventory draws, high U.S. exports, and the approaching summer demand season, Brent crude could still retest $120.
Media also pointed out that while diplomatic news has eased market sentiment, rapidly falling crude inventories, the volatile Middle East situation, and insufficient global spare capacity mean the oil market's fragility has not been eliminated.
The Key for the Future: Whether Hormuz Can Truly Reopen
The market is currently swinging violently between two starkly contrasting scenarios:
On one hand, if U.S.-Iran negotiations make substantive progress and Hormuz transit gradually resumes, the previous oil price surge driven by "supply cut fears" could continue to retreat.
On the other hand, if the Middle East situation deteriorates again and tanker transport is disrupted once more, oil prices remain highly susceptible to re-entering a short-squeeze mode, especially against the backdrop of continuously falling global inventories.
In other words, the oil market is no longer just a supply-demand market; it has become a highly politicized, sentiment-driven "geopolitical risk market."
Wednesday's plunge also reiterates that what determines oil price direction now may no longer be inventory data itself, but rather every statement exchanged between the White House and Tehran.