By Isabel Wang and Myra P. Saefong
Brent and WTI remain meaningfully above prewar levels on doubts that a cease-fire alone can fully normalize flows through the Strait of Hormuz
Angst on Wall Street about being caught off-guard if the U.S.-Iran war ends quickly sent global oil prices tumbling more than 20% in May. Both the U.S. and global benchmarks are now on pace for their biggest monthly swoon since the start of the onset of the COVID-19 crisis more than six years ago.
Brent crude saw its July contract (BRN00) (BRNN26) fall nearly 20% in May to settle at $92.05 a barrel on Friday, the last trading day of the month and for the front-month contract. The international benchmark booked its largest one-month net and percentage decline since March 2020, when the pandemic triggered a historic demand shock that crashed global oil markets.
West Texas Intermediate crude for July contract (CL.1) (CLN26) slid nearly 17% this month to end at $87.36 a barrel, also capping its worst month since early 2020 and snapping a four-month winning streak, according to FactSet data.
See: Oil prices slide as Trump says the U.S. is close to an Iran deal
Traders have been betting on an upcoming cease-fire deal that could ease supply disruptions in the Persian Gulf and resume global trade of the world’s most important commodity. Negotiators from the U.S. and Iran have reportedly reached a tentative agreement to end the conflict in the Middle East, though any deal still needs approval from President Donald Trump and Iranian leaders.
“The 60-day cease-fire may be a more noteworthy step towards a lasting end to the war, but the markets began to price in that ‘track’ in early-April when the initial, albeit more temporary in nature, ceasefire was declared,” said Tyler Richey, technical analyst at Sevens Report.
The potential cease-fire has sparked some relief across the energy industry. Chevron CEO Mike Wirth said on Friday that the psychology of the market has been “this is closer to the end, rather than the beginning.”
“There’s this belief that the end is near, the conflict is nearly resolved, and the flow through the [Strait of Hormuz] will resume very quickly, and that has kept the backend of the curve lower than it might otherwise have been,” Wirth said in an interview with Bloomberg.
Still, anxiety has been running high on Wall Street about the risks of getting the magnitude of this oil shock all wrong.
As part of this, commodity experts have been grappling with how much weight to give to the latest developments on the diplomatic front versus the looming potential for catastrophe and threat of $200-a-barrel oil if the conflict drags on much longer.
Helima Croft, head of global commodity strategy at RBC Capital, called it a “Memento mindset,” with traders treating each “over-soon” comment from the Trump administration as “breaking news despite the ongoing diplomatic deadlock over Iran’s nuclear program, control over the Strait, and repeated flare-ups of fighting has also kept a lid on prices.”
Yet with the war now in its third month, “the world’s energy shock absorbers are rapidly eroding, and time is running out to reopen the Strait and stave off a hard landing,” Croft’s team wrote in a Thursday client note.
For now, “the availability of strategic stocks and sanctioned oil that was released into the market kept prices down, but $200 [a barrel for oil] is not off the table if the strait doesn’t open,” Michael Lynch, president at Strategic Energy and Economic Research told MarketWatch on Friday.
See: The Iran war may be winding down, but the era of $60 oil could be over
Despite the roughly 20% monthly drop in May, both WTI and Brent remain meaningfully above prewar levels of around $60 a barrel, suggesting doubts that a cease-fire alone can fully normalize flows through the Strait of Hormuz.
“The headline roulette is reaching the point where it is becoming exhausting for oil traders,” said Stephen Innes, managing partner at SPI Asset Management. “Every day seems to bring another cease-fire rumor, another missile headline, another draft memorandum, another denial and another market reversal.”
Under normal circumstances, oil prices could have risen “substantially,” given the scale of the disruption, including the closure of the strait, constrained Iranian crude supply and declining global inventories, Innes said.
His view is that Brent could find a settling point around $90 a barrel, but that any return to normalcy might not happen soon, nor at all.
Markets have been simultaneously pricing in two opposing scenarios, he said. One assumes that crude flows gradually resume under “a negotiated framework,” and another where disruptions deepen and supplies tighten further.
“Every headline effectively shifts probability between those two outcomes, which explains the violent day-to-day swings,” he told MarketWatch on Friday.
Joy Wiltermuth and Claudia Assis contributed
-Isabel Wang -Myra P. Saefong
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05-29-26 1552ET
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