Oil remains volatile on doubts over US-Iran talks, US supply to tighten further

Oil prices remained volatile on Thursday as the commodity swung between positive and negative territories amid uncertainty about a peace deal between the US and Iran. 

The war between the US, Israel, and Iran has triggered the most significant disruption in global oil and gas supplies to date. 

This is a direct consequence of Iran halting traffic through the Strait of Hormuz, the critical chokepoint that normally handles approximately 20% of the world's oil and liquefied natural gas shipments.

Volatility remains high

Prices had fallen earlier in the session, but quickly reversed losses on scepticism over the peace deal. 

Oil prices dropped, fueled by optimism that the US and Iran might extend their ceasefire by two more weeks, potentially paving the way for resumed peace talks aimed at ending the conflict.

The longer oil flows through the Strait of Hormuz remain unrestored, the more constrained the physical market becomes, experts said.

Oil prices are thereby likely to stay higher for longer as supply constraints remain in the market, while the situation may tighten even further in the coming months. 

At the time of writing, the price of West Texas Intermediate crude oil was at $91.78 a barrel, up 0.6%, while Brent was at $94.97 a barrel, largely flat from the previous close. 

Disruptions and divergence

“After taking into consideration pipeline diversions and the trickle of tankers through the Strait of Hormuz, we estimate that roughly 13m b/d has been disrupted,” Warren Patterson, head of commodities strategy at ING Group, said in a note.

A clear divergence exists between the futures and physical markets.

On Wednesday, Brent traded at approximately $117 per barrel, while the front-month Brent futures settled just under $95 a barrel.

A primary upside risk for the market is a collapse of the peace negotiations between the US and Iran.

"This isn’t an unrealistic scenario, given that US and Iranian demands remain fairly wide apart,” Patterson said.

US oil supply

US crude oil exports reached their highest volume since September 2025, surging by 1.08 million barrels per day week-on-week to a total of 5.23 million barrels per day, according to the latest data from the Energy Information Administration (EIA).

Total exports of oil and refined products reached a record 12.74 million barrels per day, marking a week-over-week surge of 1.03 million barrels per day.

The increase in US exports is a result of buyers seeking alternative sources of supply due to the turmoil in the Middle East, Patterson said.

While strong exports were noted, the reduction in US crude oil inventories was modest, declining by just 913,000 barrels over the week. 

More significant draws were observed in refined product stocks, with gasoline inventories dropping by 6.33 million barrels and distillate stocks falling by 3.12 million barrels.

US domestic market to see further tightening

“With buyers shifting toward US barrels, the domestic market is set to tighten as long as Middle East disruptions persist, likely prompting a supply response from US producers,” ING’s Patterson said. 

Despite the ongoing conflict pushing WTI prices higher, US oil drilling activity has remained largely unchanged. 

Baker Hughes data showed the US oil rig count was 411 last week, only slightly up from 407 before the start of the conflict.

The EIA's domestic crude oil production forecasts, which anticipate minimal change in output this year, are consistent with the current lack of drilling activity.

“If we see a pickup in US drilling activity, it would have a more meaningful impact on oil output over 2027,” Patterson said.