Both benchmarks have mostly traded around or above the $100-per-barrel level since the U.S. and Israel launched attacks on Iran at the end of February, prompting Tehran to effectively shut the Strait of Hormuz.
Crude oil price on May 13
Brent crude futures fell 82 cents, or 0.76%, to $106.95 a barrel by 0051 GMT, while U.S. West Texas Intermediate crude dropped 66 cents, or 0.65%, to $101.52 a barrel. Oil prices had surged more than 3% on Tuesday as fading hopes of a lasting ceasefire between the U.S. and Iran weakened expectations of the strait reopening. Trump said on Tuesday that he did not believe China’s support would be necessary to end the war with Iran, even as prospects for a durable peace agreement appeared to deteriorate further and Tehran tightened its control over the strait.
China remains the largest buyer of Iranian oil despite pressure from the Trump administration. Trump is scheduled to meet Xi in Beijing on Thursday and Friday. The Iran conflict has also begun weighing on the U.S. economy, with higher crude prices pushing fuel costs up. Economists expect broader second-round inflationary effects to emerge in the coming months.
The ceasefire hangs in the balance as Trump said on Monday that the ceasefire with Iran was “on life support,” citing disagreements over several issues, including ending hostilities across all fronts, lifting a U.S. naval blockade, restarting Iranian oil exports and compensation for war-related damages.
Morgan Stanley analysts said the global oil market was now in “a race against time,” warning that the factors preventing a sharper rally in crude prices could weaken if the Strait of Hormuz remains closed into June.Despite disruptions affecting nearly 1 billion barrels of oil supply, crude prices are still below the peaks seen in 2022 following Russia’s invasion of Ukraine. Analysts led by Martijn Rats said the market entered the current crisis with stronger buffers, while investors largely continued to believe that Hormuz would eventually reopen.
Morgan Stanley added that rising U.S. crude exports and weaker Chinese imports have so far helped cushion the market from a more severe supply shock. However, the brokerage warned that a prolonged closure of the strait could tighten global supplies again if disruptions persist beyond what either China or the United States can comfortably absorb.
Haitong Futures said markets remain uneasy and cautioned that the ceasefire could prove temporary. The firm added that stalled talks between Washington and Tehran risk triggering another escalation that could send oil prices even higher.
Saudi Aramco CEO Amin Nasser warned on Monday that disruptions to shipments through Hormuz could delay the return of stability to oil markets until 2027, potentially affecting around 100 million barrels of oil supply each week.
Nuvama Institutional Equities said an extended closure of the Strait of Hormuz could disrupt close to 20 million barrels per day of global crude flows. In that case, the brokerage estimated oil prices could rise to between $110 and $150 per barrel.
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