Oil prices eased on Thursday as an unexpected Israel-Lebanon ceasefire reinvigorated diplomatic efforts to resolve the U.S.-Iran conflict, fueling hopes that the vital Strait of Hormuz could soon reopen.
Brent crude futures slipped 77 cents, or 0.8%, to $97.03 a barrel by early morning trading in London, while U.S. West Texas Intermediate fell 70 cents, or 0.7%, to $95.32 a barrel.
The modest pullback came after both contracts surged roughly 2% on Wednesday, driven by a sharp escalation in regional hostilities that included Iranian missile strikes on Kuwait and U.S. military operations near the Strait of Hormuz.
Thursday’s retreat, while measured, signals that traders are carefully weighing the first meaningful diplomatic signals to emerge from the conflict in weeks.
Late Wednesday, both Israel and Lebanon confirmed they had reached a ceasefire agreement, a development that sent quiet but significant ripples through energy markets.
The announcement carries particular weight because Tehran has long made any broader deal with Washington contingent, at least in part, on an end to Israeli military operations against Hezbollah in Lebanon.
“Iran insists on a halt to Israel’s aggression toward Lebanon, meaning Hezbollah, and indeed there does seem to be a breakthrough,” said John Evans, an analyst at PVM Oil Associates, echoing the cautious optimism spreading through trading floors.
Adding to the diplomatic momentum, U.S. President Donald Trump suggested on Wednesday that progress in negotiations with Iran could come as early as this weekend, a notably specific timeline from a White House that has thus far offered little in the way of a clear diplomatic roadmap.
Iranian Foreign Minister Abbas Araqchi offered a more measured tone, confirming that back-channel communications between Tehran and Washington remain open but cautioning that no substantive progress has yet been achieved. Both sides, he noted, are currently reviewing the texts exchanged during previous rounds of talks.
In a significant political development on Capitol Hill, the Republican-led House of Representatives passed a resolution on Wednesday seeking to block President Trump from continuing military operations against Iran without congressional authorization.
However, the measure faces steep hurdles: it would require Senate approval and a two-thirds majority in both chambers to override what analysts broadly expect to be a near-certain presidential veto.
The vote nonetheless underscores mounting unease within Congress over the open-ended nature of the conflict and its unpredictable consequences for global energy markets.
Despite Thursday’s dip, seasoned market watchers are wary of reading too much into short-term price relief while the Strait of Hormuz, through which roughly 20% of the world’s oil supply passes, remains effectively closed to normal traffic.
“In our view, the path of least resistance for prices remains to the upside as long as flows remain restricted,” warned Giovanni Staunovo, an analyst at UBS, voicing a sentiment widely shared across the commodity trading community.
Compounding supply concerns, the U.S. Energy Information Administration reported on Wednesday that domestic crude stockpiles fell sharply by 8 million barrels in the week ending May 29, bringing total inventories to 433.7 million barrels.
The drawdown, larger than many analysts had anticipated, points to tightening supply conditions domestically even as diplomats scramble for a resolution abroad.
Not all price pressures are pointing upward. Slowing demand from China, the world’s largest crude importer, has acted as a counterweight, helping to prevent oil prices from climbing even higher amid the geopolitical turmoil.
In a telling sign of the demand softness, Iranian crude prices slipped into discounts for the first time since April, while Russian crude premiums also eased. Trade sources indicate that both Moscow and Tehran have begun cutting prices in a bid to entice Chinese buyers, who have grown more selective as their economy shows signs of cooling.
With diplomatic talks apparently inching forward, the oil market finds itself at a delicate crossroads. A verified ceasefire deal that paves the way for broader U.S.-Iran negotiations and ultimately a resumption of shipping through the Strait of Hormuz could trigger a swift and significant price correction to the downside.
But experienced traders know better than to count on Middle East diplomacy moving in a straight line. Until tankers move freely through the Strait once more, every barrel of optimism comes with a barrel of risk.
WHAT YOU SHOULD KNOW
Oil prices dipped Thursday as an Israel-Lebanon ceasefire sparked cautious optimism over a potential broader U.S.-Iran deal and possible reopening of the Strait of Hormuz.
With the Strait still closed, U.S. crude stockpiles falling sharply, and diplomatic progress far from guaranteed, the fundamental pressure pushing prices higher remains firmly intact.
Until oil flows freely through the world’s most critical shipping lane again, any price retreat should be treated as a pause, not a turning point.
