Global oil prices fell Friday as optimism grew that the U.S. and Iran agreed to extend a cease-fire by 60 days [3].
The potential agreement is critical because it may restore smoother oil flows through the Strait of Hormuz, a vital shipping route for global energy supplies.
Brent crude is currently set for its largest monthly decline since 2020, with prices dropping approximately 19% throughout May [1]. This sharp downturn reflects a shift in market sentiment as traders react to the prospect of reduced geopolitical risk in the Middle East.
West Texas Intermediate (WTI) crude was priced at approximately $87 per barrel on May 29 [2]. The price movement comes amid reports that the two nations have reached a temporary diplomatic understanding to avoid further escalation.
Market participants have spent months pricing in the risk of supply disruptions. The current optimism suggests that the 60-day extension [3] could provide a window for further negotiations and stabilize the transit of tankers through the region.
While some reports indicated mixed movement in the markets, the prevailing trend on May 29 showed a significant slide in costs [4]. Traders are now weighing the likelihood of a long-term peace deal against the possibility of a renewed conflict if the extension fails.
“Brent crude is currently set for its largest monthly decline since 2020”
The significant drop in oil prices indicates that the market had previously baked in a 'war premium' due to tensions in the Strait of Hormuz. A 60-day ceasefire extension reduces the immediate risk of a supply shock, shifting the global energy outlook from one of scarcity and disruption to one of relative stability, which puts downward pressure on crude benchmarks.
