Oil markets have experienced significant volatility as geopolitical tensions in the Middle East, particularly the closure of the Strait of Hormuz, continue to impact global supply. Brent crude dropped below $100 and WTI fell near $97, marking a 5.4% decline from $100/barrel Brent, driven by market optimism over potential de-escalation in the Iran conflict following signals from President Trump that the situation could resolve within two to three weeks [2]. However, Iran denied that talks are underway or that the Strait of Hormuz is about to be reopened, causing prices to rebound during the European session [2][3]. WTI futures on NYMEX recovered half of their early losses, settling down 1.5% to near $96.00 [3].
Iranian President Masoud Pezeshkian expressed readiness to end the conflict with the US, contingent on essential guarantees to prevent further aggression, as communicated to EU Council President António Costa [3]. Despite these diplomatic efforts, global leaders, including UK Prime Minister Keir Starmer and UAE officials, warned that reopening the Strait of Hormuz will be challenging, with the UAE willing to support US-led efforts for a forceful reopening [3]. The International Energy Agency's chief, Fatih Birol, reported that approximately 40 key energy assets have been damaged in the Middle East, but assured that strategic reserves would be released to stabilize supply [3].
US crude oil inventories showed a surprise build of 10.263 million barrels, contrary to expectations of a 1.3 million barrel draw, according to the API weekly report. The Strategic Petroleum Reserve was drawn down by 0.300 million barrels last week, and US production fell to 13.657 million barrels, still 0.83 million barrels per day higher than in 2025 [2]. Gasoline inventories fell by 3.2 million barrels but remain 3% above average, while distillates fell by 1.04 million barrels, staying 0.4% below their five-year average. The upcoming EIA report is expected to confirm supply and production trends [2].
Commerzbank analysts Bernd Weidensteiner and Christoph Balz argue that the US economy is better positioned to absorb higher oil prices than in past crises, citing lower oil intensity, near self-sufficiency, and experience from the 2022 shock. Their base scenario anticipates only a temporary dip in US growth in Q2, with GDP expanding 2.4% in 2026 and 2.3% in 2027 [1]. The main risk identified is that inflation expectations could become unanchored, potentially forcing the Federal Reserve to adopt a more restrictive policy. Fed Chair Powell noted that inflation has been above the Fed’s 2% target for five years [1].
CONCLUSION
Oil prices remain highly sensitive to geopolitical developments, with the closure of the Strait of Hormuz and ongoing Middle East tensions sustaining supply risks. Despite market hopes for de-escalation, leaders warn that reopening Hormuz will be difficult, and infrastructure damage persists. The US economy is expected to weather the oil shock with only a temporary growth dip, but inflation risks could prompt tighter monetary policy.