Oil Market Game Under the Shadow of Hormuz: WTI Prices Fluctuate by Over $5 in a Single Day
2026-05-29 01:19:28
On Thursday (May 28), WTI experienced a dramatic V-shaped curve in just one trading day, with a daily fluctuation of more than $5.
In the morning, the US military launched its second airstrike on Iranian military targets this week, and Kuwait simultaneously announced the interception of Iranian missiles and drones, causing a sudden escalation of tensions in the Middle East. WTI crude oil jumped to a daily high of $92.52. Subsequently, Axios reported that the US and Iran had reached a preliminary memorandum of understanding, agreeing to extend the ceasefire for 60 days and initiate nuclear negotiations, causing oil prices to plummet to $87.24. Towards the end of the trading day, stronger-than-expected EIA inventory data, with crude oil, gasoline, and distillate fuel inventories all falling more than market expectations, provided fundamental support and helped oil prices stabilize around $88 at the close.
Statements from all parties: No agreement reached, market doubts remain.
After the news of the ceasefire memorandum of understanding was released, the market did not fully believe it, because statements from all parties pointed to a high degree of uncertainty.
Following the news, Trump denied that Washington and Tehran had reached a compromise, stating that the memorandum of understanding still required his final approval. Treasury Secretary Bessenter, however, took a strong stance, clearly stating that he "will not tolerate the Hormuz toll system" and warning that any partner involved in Iran's toll arrangements would face sanctions—the Treasury Department added Iran's Persian Gulf Straits Authority to its sanctions list on the same day.
Although Iran participated in the negotiations, it did not show any significant willingness to compromise on the two core issues of nuclear weapons and the right of way. The memorandum of understanding required Iran to clear mines within 30 days, raising doubts about its willingness to comply. The parallel stance of hardline rhetoric and news of peace talks was the core logic behind the rapid recovery of oil prices after their sharp drop that day.
Fundamentals: Supply and demand are tight on both sides, and inventory is being reduced at an accelerated pace.
The pressure on the supply side comes from three converging directions. The Strait of Hormuz is currently largely closed to navigation; approximately one-fifth of the world's crude oil and LNG are transported through this strait. Goldman Sachs estimates a daily capacity shortfall of about 14.5 million barrels in the Gulf region, while the global cumulative inventory shortfall is nearly 500 million barrels, potentially exceeding 1 billion barrels in June. Although OPEC planned to increase production, actual daily output in April fell by 420,000 barrels to 20.55 million barrels, a 35-year low, with the conflict virtually thwarting the production increase plan. Regarding Russia and Ukraine, Ukraine continues to attack Russian refineries, launching at least 21 attacks in April. The average daily processing volume of Russian refineries has hit a 16-year low, and Russia's oil export capacity continues to shrink.
Both demand and inventory levels remain tight. EIA data shows that U.S. crude oil inventories fell by 3.33 million barrels, gasoline by 2.57 million barrels, and distillate fuel oil by 2.1 million barrels last week, all exceeding expectations. Distillate fuel oil inventories have fallen to a 23-year low, 10.8% below the five-year average. Cushing inventories also saw a significant drop of 2.79 million barrels in a single week. Vortexa data shows that floating storage at sea also declined by 18% to 87.05 million barrels. The IEA points out that even if the conflict ends next month, the global supply gap will continue until October.
Market Outlook
In the short term, before the memorandum of understanding is approved and the Straits are substantially reopened, geopolitical premiums are unlikely to be systematically released, and WTI crude oil is likely to fluctuate widely between $85 and $93, highly sensitive to headline news. In the medium term, even if the situation stabilizes, the difficulties in implementing OPEC's production increase, the continued pressure on Russian oil, and the accelerated destocking will provide strong fundamental support for oil prices, and the gap will be difficult to close in the short term.
The biggest downside risk is the actual implementation of the agreement: Trump's signing, Iran's mine clearance, and the reopening of the Strait of Hormuz would put systemic pressure on oil prices. Upside risks lie in a breakdown in negotiations or a new round of military escalation, especially an expansion of Israel's ground operations in Lebanon. If the situation gets out of control, a price above $95 is not impossible. Furthermore, the coexistence of weak US GDP and rising inflation—signals of stagflation—has put the Federal Reserve in a dilemma regarding rising interest rate expectations. If demand expectations weaken, this will also exert marginal downward pressure on oil prices.
The fate of the Strait of Hormuz is not merely a matter of opening and closing a shipping lane, but rather the most difficult-to-quantify risk variable in current global energy pricing. Until the dust settles, volatility is the only certainty.
In the morning, the US military launched its second airstrike on Iranian military targets this week, and Kuwait simultaneously announced the interception of Iranian missiles and drones, causing a sudden escalation of tensions in the Middle East. WTI crude oil jumped to a daily high of $92.52. Subsequently, Axios reported that the US and Iran had reached a preliminary memorandum of understanding, agreeing to extend the ceasefire for 60 days and initiate nuclear negotiations, causing oil prices to plummet to $87.24. Towards the end of the trading day, stronger-than-expected EIA inventory data, with crude oil, gasoline, and distillate fuel inventories all falling more than market expectations, provided fundamental support and helped oil prices stabilize around $88 at the close.
Statements from all parties: No agreement reached, market doubts remain.
After the news of the ceasefire memorandum of understanding was released, the market did not fully believe it, because statements from all parties pointed to a high degree of uncertainty.
Following the news, Trump denied that Washington and Tehran had reached a compromise, stating that the memorandum of understanding still required his final approval. Treasury Secretary Bessenter, however, took a strong stance, clearly stating that he "will not tolerate the Hormuz toll system" and warning that any partner involved in Iran's toll arrangements would face sanctions—the Treasury Department added Iran's Persian Gulf Straits Authority to its sanctions list on the same day.
Although Iran participated in the negotiations, it did not show any significant willingness to compromise on the two core issues of nuclear weapons and the right of way. The memorandum of understanding required Iran to clear mines within 30 days, raising doubts about its willingness to comply. The parallel stance of hardline rhetoric and news of peace talks was the core logic behind the rapid recovery of oil prices after their sharp drop that day.
Fundamentals: Supply and demand are tight on both sides, and inventory is being reduced at an accelerated pace.
The pressure on the supply side comes from three converging directions. The Strait of Hormuz is currently largely closed to navigation; approximately one-fifth of the world's crude oil and LNG are transported through this strait. Goldman Sachs estimates a daily capacity shortfall of about 14.5 million barrels in the Gulf region, while the global cumulative inventory shortfall is nearly 500 million barrels, potentially exceeding 1 billion barrels in June. Although OPEC planned to increase production, actual daily output in April fell by 420,000 barrels to 20.55 million barrels, a 35-year low, with the conflict virtually thwarting the production increase plan. Regarding Russia and Ukraine, Ukraine continues to attack Russian refineries, launching at least 21 attacks in April. The average daily processing volume of Russian refineries has hit a 16-year low, and Russia's oil export capacity continues to shrink.
Both demand and inventory levels remain tight. EIA data shows that U.S. crude oil inventories fell by 3.33 million barrels, gasoline by 2.57 million barrels, and distillate fuel oil by 2.1 million barrels last week, all exceeding expectations. Distillate fuel oil inventories have fallen to a 23-year low, 10.8% below the five-year average. Cushing inventories also saw a significant drop of 2.79 million barrels in a single week. Vortexa data shows that floating storage at sea also declined by 18% to 87.05 million barrels. The IEA points out that even if the conflict ends next month, the global supply gap will continue until October.
Market Outlook
In the short term, before the memorandum of understanding is approved and the Straits are substantially reopened, geopolitical premiums are unlikely to be systematically released, and WTI crude oil is likely to fluctuate widely between $85 and $93, highly sensitive to headline news. In the medium term, even if the situation stabilizes, the difficulties in implementing OPEC's production increase, the continued pressure on Russian oil, and the accelerated destocking will provide strong fundamental support for oil prices, and the gap will be difficult to close in the short term.
The biggest downside risk is the actual implementation of the agreement: Trump's signing, Iran's mine clearance, and the reopening of the Strait of Hormuz would put systemic pressure on oil prices. Upside risks lie in a breakdown in negotiations or a new round of military escalation, especially an expansion of Israel's ground operations in Lebanon. If the situation gets out of control, a price above $95 is not impossible. Furthermore, the coexistence of weak US GDP and rising inflation—signals of stagflation—has put the Federal Reserve in a dilemma regarding rising interest rate expectations. If demand expectations weaken, this will also exert marginal downward pressure on oil prices.
The fate of the Strait of Hormuz is not merely a matter of opening and closing a shipping lane, but rather the most difficult-to-quantify risk variable in current global energy pricing. Until the dust settles, volatility is the only certainty.
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