Oil prices recovered modestly on Thursday following the previous session’s dramatic selloff, as Middle East peace negotiations continued to hold global energy markets hostage, with analysts warning the outcome could either crash crude prices or send them soaring.
Brent crude futures climbed 54 cents, or 0.5%, to $101.81 a barrel by 06:15 GMT, while U.S. West Texas Intermediate added 45 cents, also 0.5%, to reach $95.53 a barrel.
The gains, while modest in isolation, carry outsized significance given the turbulence of the preceding 24 hours, during which both benchmarks cratered more than 7%, briefly touching two-week lows on a surge of optimism that a formal end to the Middle East war might finally be within reach.
That optimism, however, proved premature.
Wednesday’s sharp decline was fueled by market speculation that a peace agreement between the United States and Iran was imminent, a prospect that, if realized, would unlock significant oil supply that has been effectively frozen out of global markets since the conflict began. But the rally in sentiment was swiftly punctured by sobering words from both sides of the negotiating table.
U.S. President Donald Trump threw cold water on the enthusiasm, stating it was “too soon” for direct face-to-face talks with Tehran, while a senior Iranian lawmaker dismissed the American proposal as little more than a wish list far removed from a serious diplomatic framework that Tehran could accept.
Iran confirmed on Wednesday it was reviewing a U.S. peace proposal, one that, according to sources familiar with the negotiations, would formally end hostilities while deliberately sidestepping two of Washington’s most contentious demands: that Iran suspend its nuclear enrichment program and reopen the strategically vital Strait of Hormuz, the narrow waterway through which roughly a fifth of the world’s oil flows.
An Iranian foreign ministry spokesperson, cited by the state-run ISNA news agency, said Tehran would convey its formal response in due course. President Trump, for his part, expressed cautious optimism, saying he believed Iran ultimately wanted a deal.
Adding a further layer of intrigue, a Pakistani mediation source and a second individual briefed on the talks indicated that negotiators were edging close to agreement on a one-page memorandum that would serve as a formal declaration ending the conflict, a document notable as much for its brevity as for what it reportedly leaves unresolved.
Meanwhile, U.S. media outlet Axios reported that Washington expects Iranian responses on several critical sticking points within 48 hours, with sources characterizing the moment as the closest the two parties have agreed since the war erupted.
Beyond the immediate diplomatic chess match, traders are also watching a separate geopolitical calendar entry with keen interest. Presidents Trump and Xi Jinping of China are scheduled to meet next week.
“While peace negotiations are likely to continue at least until next week’s U.S.-China summit, the outlook beyond that remains uncertain,” said Hiroyuki Kikukawa, chief strategist at Nissan Securities Investment. “The main scenario is that oil prices will remain elevated.”
Kikukawa’s assessment reflects a broader consensus forming in trading desks from Tokyo to London: that even a best-case diplomatic outcome will not immediately translate into lower prices at the pump or relief for energy-hungry economies.
For many seasoned market observers, the daily whipsaw in oil prices has become a defining and exhausting feature of trading in 2025.
“From a broader perspective, oil markets have remained stuck between diplomacy and disruption for more than two months, with investors’ emotions being manipulated by headlines almost daily,” said Priyanka Sachdeva, senior market analyst at Phillip Nova, capturing the fatigue felt across the industry.
Sachdeva laid out the two starkly divergent scenarios now confronting the market with unusual clarity. “If a formal deal eventually materializes, oil prices could witness a free fall as geopolitical premiums rapidly evaporate from the market,” she warned. “However, any fresh signs of attacks on oil infrastructure or escalation in the Middle East could easily trigger another parabolic spike in crude prices.”
It is a binary outcome with trillion-dollar consequences, and for now, nobody knows which way it falls.
Even the optimists urging traders to price in a peace dividend are being counselled to temper their expectations. Energy analysts and logistics experts have been quick to remind markets that even if a ceasefire agreement is signed tomorrow, the physical reality of global oil supply chains means relief will not arrive quickly.
Oil shipments disrupted or rerouted due to the Iran crisis will take weeks to resume normal transit from the Gulf and reach refineries worldwide.
In the meantime, oil companies across the globe have been steadily depleting their strategic storage reserves to meet the intense demand of peak summer consumption, a drawdown that leaves the market with a dangerously thin buffer against any fresh shocks.
That structural tightness was underscored by data released Wednesday by the U.S. Energy Information Administration (EIA), which reported that American crude and fuel inventories continued to fall last week as countries scrambled to offset the supply disruptions unleashed by the Iran crisis.
Crude stockpiles declined by 2.3 million barrels to 457.2 million barrels, a significant draw, though smaller than the 3.3 million-barrel reduction that analysts polled by Reuters had anticipated.
For now, oil markets are in a holding pattern, elevated, volatile, and acutely sensitive to every diplomatic signal emanating from Tehran, Washington, and the various mediating capitals in between.
The coming 48 hours, with Iran’s expected response to U.S. proposals, and next week’s Trump-Xi summit may well prove to be the most consequential period for global energy markets in months.
WHAT YOU SHOULD KNOW
Oil prices recovered modestly on Thursday after Wednesday’s steep 7% plunge, but the market remains deeply unstable.
Negotiations between the U.S. and Iran are closer than ever to producing a formal agreement, yet critical sticking points, Iran’s nuclear program and control of the Strait of Hormuz, remain unresolved.
Even if a deal is struck, prices won’t fall immediately; supply chains need weeks to normalize, and global storage reserves are already running low heading into peak summer demand.
