Global oil prices have dropped sharply as traders bet that a ceasefire between the U.S. and Iran could ease pressure on one of the world’s most important shipping routes. The key focus is the Strait of Hormuz, where any improvement in security could allow more crude to move through again.
Brent crude was down 1.2% on the final trading day of the month, trading at $92.56 as of 11:18 a.m. in London, while U.S. West Texas Intermediate futures fell 1.9% to $87.18. Brent has lost almost 19% in May and is now about 20% below its 2026 peak, while WTI has fallen 16.5% month-to-date.
Market pressure builds as supply fears ease
The decline reflects growing optimism that the conflict could move toward a longer-lasting truce. Traders are also weighing the possibility that a ceasefire would reopen shipping through the Strait of Hormuz, a critical channel that handled about 20% of global energy supply before the conflict.
Oil prices had surged after the war began on Feb. 28, when seaborne crude was largely blocked from moving through the strait between Iran and Oman. That disruption helped push prices higher, but the market has now shifted as peace talks gain traction.
Ceasefire hopes remain uncertain
The U.S. and Iran are understood to have “mostly agreed” on the terms of a 60-day memorandum of understanding to extend the ceasefire. Even so, the arrangement still needs approval from President Donald Trump, leaving the outlook uncertain.
Despite the renewed peace hopes, military activity has not fully stopped. Iranian forces fired ballistic missiles at Kuwait and sent attack drones toward the Strait on Thursday, showing that security risks remain present.
UBS said there is still “little evidence” of any short-term improvement in vessel traffic or energy flows through the region. In a note, analysts led by Henri Patricot said crude loadings inside the Gulf remain “extremely low.”
Flows remain weak despite the price pullback
UBS noted that Iran crude loadings for May are still below 0.3 million barrels per day. That compares with April’s average of 1.5 million barrels a day and March’s 1.7 million barrels a day, highlighting how severely exports have slowed.
The weak flow data suggests the market is not yet pricing in a full return to normal shipping conditions. Even if a deal advances, the physical recovery in oil movement may lag behind political developments.
Bob Parker, senior advisor at the International Capital Markets Association, said oil prices will likely stay between $90 and $100 “at least for the next couple of months” until there is more clarity on any lasting peace agreement. He also said investor skepticism about the talks is “inevitable.”
Parker added that even if the Strait of Hormuz reopens, the move would probably be only partial. He pointed to damage across the Gulf, including to infrastructure, refineries and pipelines, along with ongoing security risks for tankers and depleted inventories.
For now, traders are balancing hopes of lower geopolitical risk against the reality that oil supply lines across the Gulf are still under strain. The next move in prices will likely depend on whether ceasefire talks produce a durable agreement and whether shipping through the Strait of Hormuz can resume more fully.
