Oil prices continue to retreat following yesterday’s slump of over 7% for both benchmarks. Light Crude Oil Futures (WTI) are currently trading at 92.67, reflecting a 2.53% decline. Brent Crude Futures are also lower, down 2.77% at a price of 98.46.
The continued decline in oil prices follows renewed talk of resuming negotiations after the US administration unexpectedly halted military operations in the Strait of Hormuz.
Reuters reports that President Donald Trump expressed optimism for a “swift end” to the Iranian conflict while Tehran evaluates a new American peace plan. During an Oval Office briefing, Trump said the two nations had held constructive talks the previous day, adding, “It’s very possible that we’ll make a deal.”
Simultaneously, Axios reports that the White House is finalizing a 14-point memorandum of understanding to halt hostilities and establish a framework for nuclear discussions. Officials noted the framework would mandate at least a 12-year halt on Iranian nuclear enrichment in exchange for the removal of U.S. sanctions and the release of frozen capital. Additionally, both countries would agree to end shipping blockades in the Strait of Hormuz.
This preliminary agreement, brokered by Steve Witkoff and Jared Kushner, would launch a month of intensive negotiations in either Geneva or Islamabad. While Secretary of State Marco Rubio highlighted the importance of a transparent diplomatic path, he noted that unified support within the Iranian government is not guaranteed. Axios also highlighted a potential major shift: the prospect of Iran transporting its highly enriched uranium abroad, a demand Tehran has historically dismissed.
However, in the context of this specific conflict, discussions of a ceasefire often remain speculative and ineffective unless they culminate in a lasting peace treaty. Whether these current diplomatic efforts will succeed remains to be seen. Meanwhile, the Strait is still closed, oil supply is disrupted, and inventories are being depleted.
According to the Wall Street Journal Editorial Board, based on conversations with top officials, the primary U.S. requirements for a deal remain firm. These include a formal pledge from Iran against seeking nuclear arms, the total decommissioning of the Isfahan, Natanz, and Fordow sites, and a prohibition on underground nuclear operations. Furthermore, the U.S. is pushing for a 20-year enrichment moratorium, the surrender of all existing enriched material, and an immediate-inspections system backed by strict penalties.
Good luck in obtaining concessions from the new hardline Iranian leadership.
Moreover, the current negotiations do not appear to address Iran’s ballistic missile program, which forms the backbone of the country’s long arm.
With disregard for these two main programs, Trump’s withdrawal from his Project Freedom to forcibly open the strait in less than two days is, in my view, only a defeat for the United States.
Bearing this narrative in mind, I don’t think Trump will do anything other than market his defeat as a victory domestically, separate from reality, which he excels at, or treat this round of diplomacy as nothing more than a maneuver, like its predecessor, to force oil prices to decline. While I am inclined to believe that the second scenario will occur, the Israeli side cannot be ignored either, as Iranian missiles will pose a constant threat to it, and this may push them to resume the war in order to achieve their goals. They may also escalate the war on the Lebanese front, which could ultimately lead to the effective end of the current game of negotiations.
With the physical or paper markets recognizing that rounds of de-escalation and negotiations are as fragile as before, I believe prices may remain high for a long time or gradually decline, only to surge upward at any sign of renewed escalation. Moreover, the strait has not yet been reopened, with 1,600 ships still stranded near the Strait of Hormuz, according to CNN, and the long-term structural damage to supplies has already been done. It may take months to repair if the war stops today, which could also slow the decline in prices if they don’t rise as stockpiles are depleted.
According to Reuters, global oil supplies are expected to tighten further even if a peace deal is reached, as it will take weeks for shipments to resume and reach refiners. Energy executives warn that the world has already consumed at least 500 million barrels from stockpiles to offset the war’s impact. While the rapid depletion of reserves coincides with the peak summer demand season, leaving the global energy system in a weakened state.
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