Diplomatic Hopes Send Oil Prices Swinging as Physical Shortages Persist

Overview

• Markets swung on Friday after reports that U.S. and Iranian proposals had narrowed gaps and then Iranian officials tempered expectations, producing rapid price falls followed by a partial rebound.
• The International Energy Agency reported global observed oil inventories fell at about 4 million barrels per day in March–April and said the market will remain severely undersupplied through October.
• ADNOC’s chief executive warned this week that full oil flows through the Strait of Hormuz may not return until at least early 2027 because more than 80 energy facilities have been damaged and recovery can take up to two years.
• Governments and producers are taking limited steps to ease pressure, with OPEC+ expected to approve a modest July quota increase and the UK suspending sanctions on some diesel and jet fuel refined from Russian crude.
• Higher fuel costs, shipping disruption, and lower-quality bunker supplies in Europe are already affecting consumers and trade, and the key question now is whether any diplomatic deal can quickly restore physical flows given structural damage and inventory drawdowns.