Crude Oil Prices Plummet Amid Reports of Easing Tensions with Iran

Oil Prices Decline Following Trump's Comments on US-Iran Conflict

Oil prices settled lower on Wednesday after President Donald Trump indicated that the U.S. would end its war with Iran in the near future. The front-month Brent contract for June fell by $2.81, or 2.7%, to settle at $101.16 per barrel, bouncing off a session low of $98.35. U.S. West Texas Intermediate crude futures for May slipped $1.26, or around 1.2%, to $100.12 per barrel, off a session low of $96.50.

Trump's comments, which were made in an interview with Reuters, suggested that the U.S. has ensured that Iran will not possess nuclear arms and is prepared to exit the conflict "pretty quickly." This news led to a decline in oil prices, which had risen significantly in the previous trading session. On Tuesday, Trump signaled that the U.S. could wind down the war in two to three weeks, even without a deal, resulting in a decline of more than $3 a barrel.

Market participants are betting that Trump will not allow oil supply disruptions caused by the Middle East war to extend into mid-May, when U.S. gasoline demand is typically at its strongest. According to SEB analysts, the risk to U.S. gasoline prices, consumer sentiment, and ultimately the November midterm elections makes a prolonged conflict "politically costly."

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U.S. and Iran Continue to Give Conflicting Signals

In a social media post on Wednesday, Trump said that Iran had asked for a ceasefire, but he would only consider it after Tehran stops blocking the Strait of Hormuz. However, Iran denied making any such request. The Strait of Hormuz has been closed since the U.S. and Israel launched attacks on Iran at the end of February, disrupting Middle Eastern oil exports and driving fuel prices higher globally.

Analysts expect that energy flows through the Strait of Hormuz would be slow to return to levels before the conflict even if a ceasefire is announced. Oil trading advisor Ritterbusch and Associates noted that the status of the Strait of Hormuz remains highly uncertain and deserving of a geo-risk premium, even if global oil supplies slowly begin to loosen.

Fall in Output from Big Producers

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The closure of the Strait of Hormuz has had a significant impact on crude oil output from the Organization of the Petroleum Exporting Countries (OPEC). In March, OPEC's crude oil output dropped by 7.5 million barrels per day from the previous month, as producers were forced to cut output due to full storage facilities.

The closure of the Strait of Hormuz has also affected U.S. crude oil output, which fell by the most in two years in January, due to a severe winter storm that knocked production offline. Data from the Energy Information Administration showed that U.S. crude oil output fell significantly in January.

Comparison of Crude Oil Prices

Meanwhile, U.S. crude oil inventories rose more than expected last week, according to data from the Energy Information Administration.