On Wednesday (May 6), during the US trading session, initial signs of a ceasefire agreement between the US and Iran caused a sudden shift in market sentiment, leading to a sharp drop in international oil prices. Brent crude oil briefly fell below the $100 per barrel mark, hitting a two-week low. At the same time, US crude oil and refined product inventories continued to decline, making it difficult to fundamentally alleviate the tight global energy supply situation in the short term.



Oil prices plunge as markets bet on progress in peace talks.

As of 1:49 p.m. Eastern Time, Brent crude futures fell $8.31, or 7.56%, to $101.56 a barrel, with an intraday low of $96.75, the lowest since April 22; West Texas Intermediate crude also fell $6.86 (6.71%) to $95.41 a barrel.

The trigger for this sharp decline came from Pakistan, the mediator: the US and Iran are reportedly close to reaching an agreement on a one-page memorandum of understanding. US media outlet Axios, citing sources, stated that this is the closest the two sides have come to an agreement since the outbreak of the war, and the US expects Iran to respond to several key issues within 48 hours.

"In fact, even the mere possibility of reaching an agreement would immediately push futures prices further down," said Paola Rodriguez-Masiu, chief oil analyst at Rystad Energy. However, she also cautioned that even if the Strait of Hormuz reopens to navigation, global oil flows will take time to normalize. "It typically takes six to eight weeks from reliable navigation conditions to a return to normal flow; this is a structural characteristic of how shipping markets operate."

Raymond James analyst Pavel Molchanov pointed out that some of the agreements may be enough to gradually restore shipping in the Strait of Hormuz to normal, and if the downward trend in oil prices continues, gasoline prices for US consumers are expected to fall in the next one to two weeks.

Differences remain between the positions of the US and Iran

Although the atmosphere of the negotiations has eased, there are still significant differences in the positions of the two sides.

US President Trump stated that it was "too early" to hold face-to-face talks with Tehran at this stage, but also indicated that he would wait and see if Iran was willing to accept the terms of the agreement, emphasizing that the US would never allow Iran to possess nuclear weapons. Israeli Prime Minister Netanyahu revealed that he and Trump had reached an agreement on the core objective: demanding that Iran remove all enriched uranium and completely dismantle its uranium enrichment facilities.

Iran, however, adopted a cautious stance. Iranian Foreign Ministry spokesman Baghae denied that a formal position had been conveyed through Pakistan, stating that both countries were still reviewing the exchanged agreement texts and calling some media reports "unfounded speculation." A senior Iranian lawmaker described the US proposal as "more like a wish list than a pragmatic solution." Iranian Defense Ministry spokesman Reza Talenik also clearly stated that the US could only create conditions for ending the conflict by actively distancing itself from Israel. Iran's Permanent Mission to the United Nations pointed out that the only effective way to resolve the Straits crisis was to permanently end the military conflict and lift the naval blockade, criticizing the US-promoted draft resolution in the Security Council for being politically biased.

On the military front, U.S. Central Command said Monday it had destroyed several small Iranian vessels as part of an operation to help stranded ships leave the Strait of Hormuz, and on Wednesday it intercepted an Iranian-flagged oil tanker in the area.

Inventories continue to decline, but energy supply pressures remain.

Data released by the U.S. Energy Information Administration (EIA) on Wednesday showed that U.S. crude oil and refined product inventories continued to decline in the week ending May 1, as many countries around the world race to fill the supply gap caused by the Middle East wars.

Specifically, crude oil inventories fell by 2.3 million barrels to 457.2 million barrels, less than analysts' expectations of a 3.3 million barrel decline; inventories at the Cushing, Oklahoma delivery hub fell by 648,000 barrels. Gasoline inventories fell by 2.5 million barrels to 219.8 million barrels; distillate fuel (including diesel and heating oil) inventories fell by 1.3 million barrels to 102.3 million barrels, hitting their lowest level since 2005, and have fallen by more than 20% since February 6. Andy Lipow, founder of Lipow Oil Associates, warned that downward pressure on distillate fuel inventories will continue as the U.S. Midwest enters the planting season.

Notably, U.S. distillate fuel exports hit a record high last week, reaching 1.9 million barrels per day, a significant increase from the previous week's 1.6 million barrels. "We are continuing to deplete refined product and crude oil inventories to supply other regions affected by the situation in the Middle East," said Andy Lipow. Phil Flynn, senior analyst at Price Futures Group, pointed out that the inventory decline was primarily driven by exports rather than weakening domestic demand, thus limiting market concerns.

Overall, oil prices have been climbing steadily since the outbreak of war in February and the disruption of maritime traffic in the Strait of Hormuz, with Brent crude hitting its highest level since March 2022 last week. The current continued decline in inventories reflects the urgent efforts of global refineries to fill the supply gap and also serves as a warning that even with breakthroughs in diplomatic negotiations, a full recovery of the energy market will still take time.