ING’s Warren Patterson and Ewa Manthey note that Oil prices are drifting lower as markets price in a possible extension of the US–Iran ceasefire and renewed peace talks, even as physical supply tightens due to disrupted flows through the Strait of Hormuz. They highlight record US Oil and refined product exports, limited US drilling response, and a growing divergence between Brent futures and the physical market.

Physical tightness contrasts with softer futures

"The oil market continues to edge lower amid hopes that the US and Iran extend their ceasefire by another 2 weeks, along with a potential resumption in talks to bring an end to the war. However, the physical market is becoming tighter every day that passes without a restart of oil flows through the Strait of Hormuz."

"After taking into consideration pipeline diversions and the trickle of tankers through the Strait of Hormuz, we estimate that roughly 13m b/d has been disrupted. But with the US blockade, this number could creep higher."

"The divergence between the futures and physical markets is clear: dated Brent traded around $117/bbl, while front-month Brent futures settled a little below $95/bbl yesterday. The key upside risk for the market is that peace talks between the US and Iran break down."

"With buyers shifting toward US barrels, the domestic market is set to tighten as long as Middle East disruptions persist, likely prompting a supply response from US producers. US drilling activity, however, has barely moved since the start of the conflict."

"The lack of drilling activity also ties in with the EIA’s domestic crude oil production forecasts, which suggest little change in output this year. If we see a pickup in US drilling activity, it would have a more meaningful impact on oil output over 2027."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)