Oil prices experienced significant swings this week, driven by shifting optimism and doubt surrounding ceasefire negotiations between the US, Iran, and Israel. On Thursday, Brent and West Texas Intermediate (WTI) crude benchmarks surged 3.5% and 2.5% respectively, reversing early losses as market confidence in a viable peace deal waned. By Friday, prices slipped more than 1% following announcements of a 10-day ceasefire between Israel and Lebanon and signals from US President Donald Trump that a deal with Iran might be imminent.
The core of the market disruption stems from the seven-week blockage of the Strait of Hormuz, a critical transit point for approximately 20% of the world's oil and liquefied natural gas (LNG) shipments. Analysts at ING Group estimate this has disrupted roughly 13 million barrels per day (b/d) of oil flow. Warren Patterson, head of commodities strategy at ING, noted that with the US blockade, "this number could creep higher."
Diplomatic efforts are intensifying. Officials from the US and Iran are reportedly contemplating a return to Pakistan for more discussions as soon as the upcoming weekend, with Pakistan's army chief acting as a mediator. Reports suggest Iran is open to permitting free passage of ships through the Omani side of the Strait of Hormuz, contingent on a deal being reached to avert renewed conflict. This builds on a two-week ceasefire that commenced on April 8.
Market structure reflects the ongoing tension. David Morrison, senior market analyst at Trade Nation, pointed out that forward curves for Brent and WTI continue to show backwardation, indicating persistent short-term supply issues. However, he noted, "this backwardation is not as steep, or indeed as regular as it was a week ago. That suggests some nuances are coming back into pricing."
At the time of writing, Brent crude was at $98.06 per barrel, while WTI was at $93.21 per barrel. Despite the recent ceasefire, analysts warn of continued volatility. Lallalit Srijandorn of FXStreet stated, "Any signs of escalating tensions in the Middle East could boost the WTI price in the near term." Some European and Gulf Arab officials anticipate reaching a comprehensive deal may take as long as six months.
The commodity ripple effects extended beyond oil. Aluminium prices on the London Metal Exchange (LME) rose 0.7% to $3,644.50 per ton, trading at a more than four-year high on persistent supply worries linked to the Strait of Hormuz. Copper prices had climbed to a one-month high before giving up gains to trade flat. Ewa Manthey, commodities strategist at ING Group, noted that the market remains "highly headline‑driven," and any escalation could quickly reverse sentiment.
In precious metals, gold prices were steady, with COMEX gold last at $4,826.71 per ounce. The metal initially benefited from a pullback in energy prices but gave up gains once oil surged later in the day. Manthey observed that while higher real rates and a firmer dollar could weigh on gold, "recent pullbacks suggest underlying demand remains resilient." Market participants currently assign only a 36% probability to a US interest rate cut before year-end.
