Brent Rebounds After Plunge, US Strike Tests Iran Deal Prospects
Oil prices rebounded on Tuesday (May 26) after the latest US military strike on Iran added uncertainty over the path to a deal that could reopen the Strait of Hormuz. Brent rose near US$100 per barrel, recovering some of the previous session's sharp decline when the market briefly eroded risk premiums due to diplomatic optimism.
Brent for July settlement rose 3.6% to US$99.64 per barrel at 9:37 a.m. London time, while WTI for July delivery traded at US$93.07 per barrel. Monday's trading session did not record settlement due to a US holiday, so this week's price movements are taking place with less than normal liquidity.
The rebound was triggered by a renewed perception of supply risks. US Central Command (CENTCOM) said its forces attacked missile launch sites and vessels attempting to lay mines, after Iranian media reported explosions around the strait. On the diplomatic front, US Secretary of State Marco Rubio said negotiations would still “take a few days” as both sides discussed the language of the initial document, indicating the process was not yet finalized. Iran’s Supreme Leader also declared that the Middle East would no longer be a “shield” for US military bases, adding to the tension in the region.
The market is now balancing two conflicting signals. On the one hand, there is a push to extend the ceasefire by about two months, with Washington easing the blockade and Tehran reopening Hormuz. On the other hand, a major point of contention remains: Iran claims it needs to be able to manage traffic at the chokepoint, something the US, Arab states, and Europe deem unacceptable. In this context, the oil rally reflects the return of the “operational” risk premium on Hormuz, which remains practically closed and vulnerable to disruption.
Energy analyst Saul Kavonic’s comments emphasize that the market remains cautious about pursuing a peace narrative, given that previous claims of successful negotiations and the opening of the strait have failed to materialize. When uncertainty is high, oil prices tend to move headline-driven: any indication of rapid escalation adds to the risk premium, while signals of diplomatic progress trigger an equally rapid unwinding of the premium.
Beyond strait dynamics, this material also highlights fundamental supply-side tensions. The International Energy Agency (IEA) reportedly noted that global oil inventory drawdowns are proceeding at a record pace, highlighting the US, as combined commercial and strategic stockpiles are reportedly shrinking at an unprecedented pace. This provides a cushion for prices, even as the market assesses the likelihood of reopening supply flows through Hormuz.
Additional factors potentially influencing negotiations include nuclear issues and other regional fronts. President Donald Trump has stated that Iran's enriched uranium would prefer to be destroyed in Iran or could be handed over to the US. Meanwhile, Israel has stated that it will intensify attacks on Hezbollah in Lebanon, and Tehran is demanding an end to hostilities in Lebanon as part of any deal with the US, broadening the spectrum of risks monitored by the energy market.
The next key variables are concrete signals from the initial negotiating documents (agreement language and timetable), the security status and shipping access in Hormuz, developments on strait traffic management issues, and the pace of global and US inventory drawdowns, which will determine how tight the market will remain if de-escalation is further delayed. (Arl)*
Source: Newsmaker.id
