Oil prices have fallen to a six-week low as discussions between the United States and Iran about extending a ceasefire create optimism regarding the potential reopening of the Strait of Hormuz. West Texas Intermediate experienced a nearly 2% decrease, concluding the trading session at approximately $87 per barrel, while the global benchmark, Brent crude, settled near $92.

US President Donald Trump has indicated that he will make a “final determination” regarding a preliminary agreement that would extend the current ceasefire for an additional 60 days. This agreement would allow for further discussions about Iran’s nuclear programme. According to a source familiar with the situation, uncertainty persists regarding the specifics of the agreement.

The Iranian Foreign Ministry has stated that a final understanding has not yet been achieved. Spokesman Esmail Baghaei confirmed that message exchanges between both nations continue, according to the Islamic Republic News Agency. This lack of finality contributes to the fluctuating nature of crude oil prices.

Market Reaction and Risks Remain

The crude oil market has shown signs of weakening throughout May, amidst speculation concerning the potential for an agreement between the US and Iran. Both parties have previously indicated progress in negotiations, only for discussions to ultimately stall. Recently, several vessels navigating through the Strait of Hormuz have reportedly experienced attacks, highlighting the ongoing risks faced by shipping owners in this volatile region.

Challenges Ahead for Oil Flow Resumption

The current situation regarding the Strait of Hormuz has resulted in approximately one-quarter of large non-Iranian oil tankers being unable to exit the Persian Gulf since the onset of hostilities. Key negotiation issues remain unresolved, including Iran’s control over the Strait, sanctions relief, and the country’s nuclear ambitions. These factors must be addressed before any agreement can be sustained.

In past statements, Treasury Secretary Scott Bessent noted that reopening the Strait of Hormuz and halting Iran’s enrichment of uranium are critical conditions for any viable agreement. Even if a ceasefire is extended, several obstacles could hinder the restoration of oil flows, such as the removal of mines from the waterway and the necessary repairs to energy infrastructure damaged in recent clashes.

The recovery of oil production may also take considerable time, as offshore fields that have been shut in would require months to restart. Shipping logistics will further complicate matters, as vessels could take weeks to reach consuming countries. Dennis Kissler, head of energy trading at BOK Financial Securities Inc., remarked that while increased traffic in the Strait of Hormuz is a positive indicator, stability must be established to support a sustained recovery in oil prices.

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