Oil prices dipped slightly on Wednesday after President Trump once again promised a swift end to the Iran conflict, giving markets a brief moment of relief following weeks of war-driven volatility.
Brent crude futures slipped 88 cents, or 0.8%, to $110.40 a barrel by 04:10 GMT, while U.S. West Texas Intermediate fell 67 cents, or 0.6%, to settle at $103.48, continuing a pullback that began a day earlier when Vice President JD Vance publicly acknowledged progress in ongoing diplomatic talks between Washington and Tehran.
Yet beneath the surface calm, seasoned energy market watchers are urging caution. The dip, they say, is less a reflection of genuine confidence in a peace deal and more a tentative exhale from a market that has been holding its breath for weeks.
The mixed signals coming from the White House have done little to steady investor nerves. In the same breath that Trump assured U.S. lawmakers late on Tuesday that the war would end swiftly, he had earlier in the day warned that the United States may need to strike Iran again and revealed he had been just one hour away from ordering a fresh attack before pulling back.
Those remarks followed a 24-hour period in which Trump said he had paused a planned resumption of hostilities after Tehran submitted a new proposal to end the U.S.-Iranian war, with Iran’s leadership described by the president as “begging for a deal.” In the same statement, he issued a stark warning: a new American strike could come within days if no agreement is reached.
The whiplash of diplomacy has left traders in an uncomfortable position, reacting to headlines while struggling to determine which version of U.S. foreign policy will ultimately prevail.
“Investors are keen to gauge whether Washington and Tehran can actually find common ground and reach a peace agreement, with the U.S. stance shifting daily,” said Toshitaka Tazawa, an analyst at Fujitomi Securities. “Oil prices are likely to remain elevated given the possibility of renewed U.S. attacks on Iran and expectations that, even if a peace deal is reached, crude supply will not quickly return to pre-war levels.”
Even in the most optimistic scenario, a negotiated ceasefire and a return to the table, market analysts are near-unanimous in their view that the physical oil market will not simply snap back to normal.
The Strait of Hormuz, the critical Persian Gulf chokepoint through which roughly a third of the world’s seaborne oil passes, remains severely disrupted. While some tanker traffic has cautiously resumed in recent days, shipment volumes are still well below the approximately 130 vessels that transited the strait daily before hostilities broke out.
In a rare piece of encouraging news on Wednesday, two Chinese supertankers carrying a combined 4 million barrels of Middle Eastern crude successfully exited the Strait of Hormuz after waiting in the Gulf for over two months. The passage was notable, but analysts were quick to point out that it remains an exception rather than a rule.
“Benchmark prices softened on a potential deal as the market gauges the geopolitical outcomes,” said Emril Jamil, a senior oil research analyst at LSEG. “However, prices are likely to still exhibit some upside potential even if a deal is concluded, given that supply will likely not return to pre-war levels immediately.”
The strain on global supply is increasingly showing up in inventory data. Countries have been drawing down both commercial and strategic petroleum reserves to compensate for the loss of Middle Eastern output, a stopgap measure that analysts warn cannot continue indefinitely.
In the United States, crude oil inventories fell for a fifth consecutive week, according to market sources citing data from the American Petroleum Institute released on Tuesday. Fuel stockpiles also declined.
Wall Street is already pricing in the risk of further escalation. Analysts at Citi said on Tuesday that they expect Brent crude to climb to $120 a barrel in the near term, arguing that markets are currently under-pricing both the risk of a prolonged supply disruption and broader tail risks stemming from the conflict.
That forecast of $120 per barrel would represent the highest level since the early days of the Russia-Ukraine energy crisis in 2022 and would deliver another painful blow to consumers and businesses already grappling with elevated fuel costs.
Wednesday’s modest price retreat reflects a market that is cautiously hoping for peace but preparing for continued turbulence. With diplomatic progress described as fragile, physical supply chains still operating well below pre-war capacity, and U.S. inventories shrinking week after week, the floor beneath oil prices remains firmly elevated.
Until a credible, durable agreement emerges from the fog of negotiations between Washington and Tehran, one capable of restoring confidence in the uninterrupted flow of crude through the Strait of Hormuz, the energy market’s brief moments of relief are likely to remain just that: brief.
WHAT YOU SHOULD KNOW
Despite a brief dip in oil prices fueled by Trump’s optimistic peace talk rhetoric, the market reality is far more sobering.
A deal with Iran, even if reached, will not immediately restore the oil supply to pre-war levels.
The Strait of Hormuz remains severely disrupted, U.S. crude inventories are shrinking for the fifth straight week, and Washington’s foreign policy signals change by the hour.
With Citi forecasting Brent crude at $120 a barrel in the near term, the bottom line is clear: don’t mistake a momentary price dip for stability.
The oil market remains under serious pressure, and prices are more likely to climb than fall until a credible, lasting peace agreement is not just promised but delivered.
