Brent crude oil prices surged over 3% to $99.58 a barrel following U.S. self-defense strikes in southern Iran and Tehran’s vow to retaliate. Tensions escalated as Iran claimed to have engaged U.S. drones and an F-35 jet.
Amidst this, President Trump’s statements on potential Iran talks offered a mixed outlook, while global oil inventories continue to show signs of strain, according to UBS.
Global oil markets experienced a significant shift on Tuesday, with Brent crude futures jumping more than 3% amid escalating tensions between the U.S. and Iran. The international benchmark settled at $99.58 a barrel, reacting to U.S. military strikes in southern Iran and Iran's subsequent vows of retaliation.
The U.S. military announced it had conducted "self-defense strikes" targeting missile launch locations and vessels suspected of attempting to deploy mines. The U.S. Central Command stated these actions were necessary to "protect our troops from threats posed by Iranian forces." In response, Iran's Islamic Revolutionary Guard Corps declared it would retaliate against any perceived violations of a ceasefire, claiming to have engaged U.S. drones and an F-35 jet fighter that entered Iranian airspace.
Adding to the market's volatility, President Donald Trump's communication regarding potential talks with Iran presented a mixed picture. While Trump had previously signaled an imminent deal to open the Strait of Hormuz, he also stated that negotiations were "proceeding nicely" but cautioned that military action could resume if discussions faltered. He emphasized that any agreement would either be a "Great Deal for all or, no Deal at all."
West Texas Intermediate (WTI) futures, which had not settled on Monday due to the Memorial Day holiday, initially fell nearly 3% to $93.89 per barrel before partially recovering. Both Brent and WTI remained lower compared to their Friday settlements, reflecting the uncertainty surrounding the geopolitical landscape.
Iran's state-affiliated Tasnim news agency described recent talks with the U.S. as "overall good" but indicated that a memorandum of understanding would hinge on the release of $24 billion in frozen Iranian funds. Further complicating regional diplomacy, President Trump revealed he had encouraged several Middle Eastern and South Asian nations, including Saudi Arabia, Qatar, Pakistan, Turkey, Egypt, and Jordan, to join the Abraham Accords, which aim to normalize diplomatic ties between Arab nations and Israel.
Analysts from UBS noted that the global oil market is showing increasing signs of strain, with inventories falling due to ongoing disruptions in the Strait of Hormuz. The bank reported a significant drop in observed global oil inventories in March and April, projecting cumulative production losses could surpass one billion barrels by the end of May, indicating a strongly undersupplied market.
The White House confirmed that the President and his Cabinet would convene at Camp David on Wednesday to discuss the evolving situation.
