Oil Prices Decline 4 Percent as US-Iran Ceasefire Remains Tenuous Amid Stable Passage of Ships Through Strait of Hormuz

Oil Prices Fall 4% Amid Volatile Trade and Strait of Hormuz Developments

Oil prices plummeted by approximately 4% in a volatile trading session on Tuesday, following a significant increase of 6% in the prior session. The price drop was attributed to a combination of factors, including two vessels passing through the Strait of Hormuz and the United States' assurance that the ceasefire with Iran remained in place despite recent exchanges of fire.

Brent futures fell by $4.57, or 4%, to settle at $109.87 a barrel, while U.S. West Texas Intermediate crude decreased by $4.15, or 3.9%, to settle at $102.27. Analysts at energy advisory firm Ritterbusch and Associates attributed the price weakness to a technical correction following a strong Brent price advance during the past week.

The United Arab Emirates reported that it was under attack from Iranian missiles and drones on Tuesday, even as Washington confirmed that a shaky ceasefire was intact. U.S. Defense Secretary Pete Hegseth stated that the U.S. had secured a path through the Strait of Hormuz, with hundreds of ships lining up to pass through the critical waterway. Prior to the U.S. and Israel's attack on Iran on February 28, approximately 20% of global oil supplies passed through the strait daily.

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The U.S. military reported that two U.S. merchant ships successfully passed through the strait, accompanied by Navy guided-missile destroyers. Iran denied any crossings had taken place, although shipping company Maersk confirmed that the Alliance Fairfax, a U.S.-flagged ship, exited the Gulf under U.S. military escort on Monday.

Security Council Talks on Strait of Hormuz

The United Nations Security Council will begin talks on Tuesday on a U.S.- and Bahrain-backed draft resolution that could lead to sanctions against Iran, and potentially authorize force, if Tehran fails to halt attacks and threats to commercial shipping in the Strait of Hormuz. U.S. President Donald Trump dismissed Iran's military capability, stating that Tehran "should wave the white flag of surrender."

The U.S. military claimed to have destroyed six Iranian small boats, as well as cruise missiles and drones, after Trump sent the navy to escort stranded tankers through the strait in a campaign he called "Project Freedom." South Korea is reviewing whether to join Trump's plan to help ships transit through the strait, following an explosion and fire on a Korean-operated ship in the waterway.

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U.S. Oil Inventories

The oil market is awaiting direction from weekly storage reports from the American Petroleum Institute trade group on Tuesday and the U.S. Energy Information Administration on Wednesday. Analysts estimate that energy firms pulled 3.3 million barrels of crude from storage during the week ended May 1. This would be the first time energy firms pulled crude out of storage for two weeks in a row since January.

This development compares with a decrease of 2 million barrels in the same week last year and an average decline of 2.3 million barrels over the past five years (2021 to 2025).