Oil prices continued to fall sharply after the US and Iran reached a preliminary agreement to extend the ceasefire for another 60 days, increasing expectations that energy transportation through the Strait of Hormuz could be gradually restored in the near future.
Brent oil fell to nearly 92 USD/barrel and is heading towards its strongest monthly decline since 2020, with a price drop of about 19% in May. Meanwhile, WTI oil traded below the threshold of 88 USD/barrel.
However, the prospect of reaching a final agreement remains open as US President Donald Trump has not officially approved the related terms. Previously, Axios reported that transportation through the Strait of Hormuz could be resumed without restrictions.
US Vice President JD Vance said it is too early to confirm whether the two sides will reach a final agreement or not. US Treasury Secretary Scott Bessent also only confirmed that the negotiating groups are still continuing to exchange and have not made any official commitments.
The oil market has weakened significantly in May as investors continuously bet on the possibility that the US and Iran will find common ground. However, similar positive signals have appeared before, but then negotiations still fell into deadlock.
During the conflict, the fact that the Strait of Hormuz was almost blockaded by both the US and Iran caused a major shock to the global energy market, disrupting millions of barrels of oil every day.
Mr. Aaron Stein - Chairman of the Foreign Policy Research Institute (FPRI) - said that the current negotiations are progressing slowly but in a more positive direction.
“If it is simply an extension of the ceasefire, there are basically not many changes. However, the difference this time is that it seems that the two sides have begun to agree on jointly lifting the current blockade measures,” he said.
However, many core issues have not been resolved, including Iran's nuclear program, control of the Strait of Hormuz and the roadmap for lifting sanctions.
According to US Treasury Secretary Scott Bessent, the complete restoration of maritime operations in Hormuz and the handling of Iran's enriched uranium remain key conditions for reaching a comprehensive agreement.
Even if the ceasefire is extended, the oil supply restoration process will not take place immediately.
Experts say that naval mines in the Strait of Hormuz need to be cleared, many oil fields that are out of operation will take months to restart, while energy infrastructure damaged by missile attacks and drones also needs time to repair.
In addition, oil tanker ships after resumption also need many weeks to transport goods to importing countries.
Mr. Ryan McKay - senior commodity strategist at TD Securities - believes that global oil supply will still be under pressure for a significant time.
I believe that oil flows will continue to be limited due to the shipping time of oil tankers and the production recovery process. The market may even lose about 1 billion barrels of oil in the recovery phase," he said.
Meanwhile, newly released figures show that the US energy market is increasingly tightening.
US distillate inventories have fallen to their lowest level in more than 20 years. At the same time, oil reserves at the Cushing storage center (Oklahoma) fell for the fifth consecutive week, to about 23 million barrels, approaching the threshold of 20 million barrels - a level considered minimal for the system to operate stably.
These developments show that although oil prices are falling thanks to diplomatic expectations, the global energy market is still facing the risk of short-term supply shortages if the process of restoring traffic through the Strait of Hormuz takes place slower than expected.
