The interplay between geopolitical risks and inventory factors intensifies short-term oil price volatility.
2026-05-21 16:11:50
International oil prices rose on Thursday (May 21), recovering some of the losses from the previous trading day. Investors are closely watching the progress of the US-Iran peace talks, while tight supply and declining US inventories also provided support for oil prices. Brent crude futures are currently up more than 0.7% at $106.27 per barrel, while West Texas Intermediate crude futures are up more than 1.3% at $99.65 per barrel.
Both major benchmark oil prices fell more than 4% on Wednesday, hitting their lowest levels in more than a week. This followed US President Trump saying that negotiations with Iran had entered the "final stage," but also threatening further military action if Tehran did not agree to a peace agreement.
"The oil market remains highly sensitive to news related to Iran, and participants continue to pin their hopes on reports of progress in US-Iran negotiations," ING analysts noted in a report on Thursday. However, they added, "We've been in this situation many times before, and it always ended in disappointment." The firm forecasts an average Brent crude price of $104 per barrel this quarter.
Iran warned against further attacks and announced measures to consolidate its control over the crucial Strait of Hormuz, which is now largely closed. Before the war, it carried approximately 20% of global oil and liquefied natural gas shipments. On Wednesday, Iran announced the establishment of a new "Persian Gulf Straits Authority," stating it would create a "controlled maritime zone" in the Strait of Hormuz. Iran effectively closed the strait after the US-Israeli attacks on February 28. While most fighting has ceased since the ceasefire in April, Iran continues to restrict passage through the Strait of Hormuz, while the US has blocked its coastline.
Supply disruptions in major oil-producing regions of the Middle East caused by conflict have forced countries to rapidly deplete their commercial and strategic reserves, raising concerns about depletion. The U.S. Energy Information Administration (EIA) said Wednesday that the U.S. drew nearly 10 million barrels of oil from its strategic petroleum reserves last week, a record high. EIA data also showed that U.S. crude oil inventories fell more than expected last week, highlighting the impact of supply disruptions.
"The decline in oil inventories will make it difficult for oil prices to remain low," said the chief energy and chemical researcher at a Chinese futures company. "With the Strait of Hormuz blocked, global refined product and onshore crude oil inventories are expected to fall below their lowest levels in the past five years by the end of May and June."
Citigroup analysts believe the market may be underestimating the risk of prolonged supply disruptions, maintaining their three-month forecast of $120 per barrel for Brent crude. Citigroup points out that even with progress in negotiations, supply recovery will take time, and oil prices still have room to rise in the short term. This assessment echoes the views of Bank of America's head of commodities research, Branch, who warned that if the "double blockade" of the Strait of Hormuz continues, oil prices will gradually climb to $120-130 per barrel by the end of June or early July; if hostilities resume, the situation will be even more volatile.
Gainbank believes that a de-escalation of tensions in the Persian Gulf remains a fundamental expectation. The bank's chief economist, Karsten Junius, stated that the US and Iran will eventually reach an agreement and reopen the Strait of Hormuz, predicting that oil prices will fall back to $80-90 per barrel by the end of the year. Before the agreement is implemented, oil prices are expected to remain high, but a short-term surge cannot be ruled out if negotiations are delayed.
In conclusion, the current oil market is caught in a tug-of-war between geopolitical news and fundamental factors.
On the one hand, news that US-Iran negotiations had entered the "final stage" ignited hopes for a supply recovery, but Trump's military threats and Iran's tightening control of the Strait of Hormuz meant that the geopolitical risk premium had not disappeared. On the other hand, record withdrawals from the US Strategic Petroleum Reserve, a larger-than-expected decline in commercial inventories, and expectations that global inventories might fall further below a five-year low collectively provided substantial support for oil prices.
Institutions such as ING believe that market optimism regarding the progress of negotiations may be premature, and the reality of tight supply will limit the downside potential for oil prices. In the short term, oil prices are expected to maintain a high-level fluctuation pattern, with the direction depending on the substantial progress of the US-Iran negotiations and subsequent developments in inventory data.
Market Background: Oil prices plunged more than 4% on Wednesday as Trump stated "final stage" but threats remained.
Both major benchmark oil prices fell more than 4% on Wednesday, hitting their lowest levels in more than a week. This followed US President Trump saying that negotiations with Iran had entered the "final stage," but also threatening further military action if Tehran did not agree to a peace agreement.
"The oil market remains highly sensitive to news related to Iran, and participants continue to pin their hopes on reports of progress in US-Iran negotiations," ING analysts noted in a report on Thursday. However, they added, "We've been in this situation many times before, and it always ended in disappointment." The firm forecasts an average Brent crude price of $104 per barrel this quarter.
Iran strengthens control over the Strait of Hormuz, establishing the "Persian Gulf Straits Authority".
Iran warned against further attacks and announced measures to consolidate its control over the crucial Strait of Hormuz, which is now largely closed. Before the war, it carried approximately 20% of global oil and liquefied natural gas shipments. On Wednesday, Iran announced the establishment of a new "Persian Gulf Straits Authority," stating it would create a "controlled maritime zone" in the Strait of Hormuz. Iran effectively closed the strait after the US-Israeli attacks on February 28. While most fighting has ceased since the ceasefire in April, Iran continues to restrict passage through the Strait of Hormuz, while the US has blocked its coastline.
Supply tensions worsen: US strategic petroleum reserves see record withdrawals, inventory declines exceed expectations.
Supply disruptions in major oil-producing regions of the Middle East caused by conflict have forced countries to rapidly deplete their commercial and strategic reserves, raising concerns about depletion. The U.S. Energy Information Administration (EIA) said Wednesday that the U.S. drew nearly 10 million barrels of oil from its strategic petroleum reserves last week, a record high. EIA data also showed that U.S. crude oil inventories fell more than expected last week, highlighting the impact of supply disruptions.
"The decline in oil inventories will make it difficult for oil prices to remain low," said the chief energy and chemical researcher at a Chinese futures company. "With the Strait of Hormuz blocked, global refined product and onshore crude oil inventories are expected to fall below their lowest levels in the past five years by the end of May and June."
Institutional Views
Citigroup analysts believe the market may be underestimating the risk of prolonged supply disruptions, maintaining their three-month forecast of $120 per barrel for Brent crude. Citigroup points out that even with progress in negotiations, supply recovery will take time, and oil prices still have room to rise in the short term. This assessment echoes the views of Bank of America's head of commodities research, Branch, who warned that if the "double blockade" of the Strait of Hormuz continues, oil prices will gradually climb to $120-130 per barrel by the end of June or early July; if hostilities resume, the situation will be even more volatile.
Gainbank believes that a de-escalation of tensions in the Persian Gulf remains a fundamental expectation. The bank's chief economist, Karsten Junius, stated that the US and Iran will eventually reach an agreement and reopen the Strait of Hormuz, predicting that oil prices will fall back to $80-90 per barrel by the end of the year. Before the agreement is implemented, oil prices are expected to remain high, but a short-term surge cannot be ruled out if negotiations are delayed.
The interplay between geopolitical risks and inventory factors intensifies short-term oil price volatility.
In conclusion, the current oil market is caught in a tug-of-war between geopolitical news and fundamental factors.
On the one hand, news that US-Iran negotiations had entered the "final stage" ignited hopes for a supply recovery, but Trump's military threats and Iran's tightening control of the Strait of Hormuz meant that the geopolitical risk premium had not disappeared. On the other hand, record withdrawals from the US Strategic Petroleum Reserve, a larger-than-expected decline in commercial inventories, and expectations that global inventories might fall further below a five-year low collectively provided substantial support for oil prices.
Institutions such as ING believe that market optimism regarding the progress of negotiations may be premature, and the reality of tight supply will limit the downside potential for oil prices. In the short term, oil prices are expected to maintain a high-level fluctuation pattern, with the direction depending on the substantial progress of the US-Iran negotiations and subsequent developments in inventory data.
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