Oil prices rebounded after U.S. strikes on Iranian targets near the Strait of Hormuz revived fears that the fragile path toward reopening the chokepoint could unravel. At the time of writing, Brent futures had climbed to $98.39 per barrel, up 2.34% on the session after plunging 7% on Monday. WTI futures also climbed, but remained 4.98% down from the start of the week at $91.79 due to no settlement on Memorial Day. The recovery came after crude oil prices had plunged more than 7% on Monday following President Donald Trump's comments about ongoing discussions. U.S. Central Command confirmed the strikes on Iranian targets near the Strait of Hormuz, including missile launch sites and vessels allegedly attempting to lay naval mines, with the strikes "designed to protect our troops from threats posed by Iranian forces." However, during the Asian trading session on May 25, WTI crude fell to the $90 level, while Brent crude broke below the $100 mark to $97, as markets responded to clarified news about the ceasefire negotiations. The Indian oil basket also fell below $100 per barrel on Friday for the first time since March 6, as global crude prices cooled by 11% over the past week amid reports of potential US-Iran deal progress.
The price rally was triggered by fresh US military strikes in Iran targeting missile-launch locations and boats allegedly attempting to deploy mines, according to US Central Command. Iranian media reported explosions around the city of Bandar Abbas on Monday evening, though it did not specify the source of the explosions. The strikes happened as Iran's parliamentary speaker, Mohammad Bagher Ghalibaf, and foreign minister, Abbas Araghchi, were travelling to Qatar on Monday in an attempt to finalize the deal. U.S. Secretary of State Marco Rubio had even floated the idea of a deal being finalized on Monday, although any permanent solution would remain over a month away as the current negotiations are focused mainly on extending the ceasefire for 60 days and reopening the Strait. Trump announced on social media that a U.S.-Iran agreement has been "essentially finalized" and the Strait of Hormuz will subsequently open, though Iran quickly responded by calling Trump's claim "a mixture of truth and lies" and emphasizing that the strait would remain under Iran's full management even if a deal is reached.
Crude oil prices are heading for their weakest monthly performance as hopes of an Iran-US deal boost prospects of reopening the Strait of Hormuz. Brent crude futures dropped 20% in May and were last quoted at $91 per barrel, while West Texas Intermediate (WTI) futures fell by more than 16% this month and was trading around the $87 per barrel level. According to Reuters, Washington and Tehran are likely to extend their ceasefire agreement, which will also allow for unrestricted shipping through the chokepoint, the Strait of Hormuz. Markets remain conflicted over whether the shipping route, which transits nearly one-fifth of the global energy flows, will reopen or not, as it continues to remain under a dual blockade. International crude prices, especially Brent, become of utmost importance to Indian markets, as the country is the world's third largest oil importer and imports a large chunk of its supplies from the Middle East.
Experts predict oil prices could fall by 16-17% from current levels if a material resolution comes through for the West Asia conflict and flows through the Hormuz passage resume. "If the strait genuinely reopens and tanker movement begins to normalise, we would expect Brent to correct meaningfully lower, towards the $70–75 region, before stabilising in a $70–80 band, with WTI trading roughly $6–7 below that," said Anindya Banerjee, Head of Commodity and Currency Research at Kotak Securities. According to Hareesh V, Head of Commodity Research at Geojit Investments, the return of Iranian barrels into the market is likely to trigger a sharp near-term correction in oil prices. "The supply balance could shift back into surplus relatively quickly. In that scenario, Brent could slide towards the $70–75 range in the near term, with a test of the pre-war average of around $65 per barrel possible," the Geojit analyst said. However, Banerjee emphasised that prices are unlikely to immediately return towards their pre-war levels, citing that the physical logistics of the market do not reset with a deal announcement.
"Tanker scheduling, war-risk insurance, freight rates, floating storage, and the more than one billion barrels of inventory already drawn down will take at least six months to work back to normal," the Kotak analyst added. A final resolution would therefore reflect a sharp downward repricing rather than an instantaneous return to pre-war levels. Both analysts note that if tensions in the Middle East escalate, Brent could test the highs of the $130 per barrel mark. "A continuation of tensions does not, in our view, imply a comfortable trading range; it implies a grind higher towards $130–140 on Brent, with WTI in the mid-$120s to low-$130s, as inventories approach their limits," Banerjee added. In an event where the situation deteriorates and a deal between the two countries falls apart altogether, oil prices would not just spike, but the outcome would also prove to be negative for the global economy, noted Banerjee. Renewed conflicts involving the US, Israel, and Iran would rapidly move Brent towards the $130+ level, and in the case of severe escalation where bypass infrastructure is also targeted, the global benchmark could possibly climb above the $150 per barrel level.
