Brent crude futures fell below $100 a barrel on Thursday, May 7, as reports of an imminent U.S.-Iran peace deal raised hopes of an end to the two-month conflict and a reopening of the critical Strait of Hormuz. WTI futures also declined on the positive developments.
"It's baked in, full stop," Jeff Currie, chief strategy officer of Energy Pathways at Carlyle, said of coming fuel shortages, speaking to Bloomberg on Wednesday. "It's going to take so long to get all this restarted that those inventories will continue to draw."
The market optimism follows a report from Axios that the White House is near an agreement on a one-page memorandum to end the war. However, energy experts caution that depleted reserves and logistical hurdles mean fuel shortages and high prices will persist for months even if a deal is signed. HFI Research, an energy-focused investment research firm, predicted the U.S. could run out of "buffer" crude product stores in two weeks.
Oil prices last traded near $100 after tumbling from a four-year high of $126 a barrel last week. While a deal could unlock Iranian supply, analysts at HFI Research see prices potentially surpassing their 2008 peak to top $150 a barrel as a "ripple effect" of panic buying and depleted inventories takes hold.
The prospect of a peace deal comes as U.S. President Donald Trump threatened Iran with "a much higher level and intensity" of bombing if it does not agree to a deal. In a social media post, Trump said the war could soon end, but it depends on Iran accepting the reported agreement, which he did not detail. An Iranian Foreign Ministry spokesman said Tehran was examining the latest U.S. proposal after rejecting earlier versions.
Despite the diplomatic moves, the physical market for oil remains severely distorted. The closure of the Strait of Hormuz has bottled up hundreds of merchant ships in the Persian Gulf. Hapag-Lloyd, a major shipping company, said the shutdown is costing it around $60 million per week. Analysts warn it could take three months at a minimum for shippers and insurers to regain confidence to transit the strait even after a ceasefire.
This delay means that severe fuel shortages are likely unavoidable. Currie estimated that European oil stores will hit "tank bottoms" in May, while the U.S. will likely run out of its reserves by the Fourth of July. Jet fuel and diesel are expected to be the first products to experience shortages, a development that would have significant inflationary consequences.
"Households paying more for airfare, gasoline, or delivered goods have less income to spend elsewhere," Christopher Hodge, chief U.S. economist at Natixis CIB Americas, told Business Insider. The impact would ripple through discretionary spending categories like restaurants and retail.
The supply crunch has led to massive profits for some energy companies. Shell reported underlying earnings of $6.92 billion, more than double the previous quarter, thanks to the higher cost of crude. The results have fueled calls from campaigners for a stronger windfall tax on energy firms.
This article is for informational purposes only and does not constitute investment advice.
