Oil Drops 6% on Iran Deal Hopes, But Record SPR Draw Shows How Tight Supply Really Is

Oil Drops 6% on Iran Deal Hopes, But Record SPR Draw Shows How Tight Supply Really Is Brent crude whipsawed between $65 and $106 as diplomacy competed with the largest-ever US strategic petroleum reserve withdrawal for control of the price narrative. ICE Brent crude front-month fell 3.8% to $95.54 a barrel on Tuesday, with NYMEX WTI front-month down 6.1% to $92.85, as hopes of a US-Iran deal weighed on prices for the third consecutive session. The selloff accelerated after President Trump posted on Truth Social that a deal had been "largely negotiated." Brent had earlier dropped over 7% to below $99, while WTI fell around 8% to $90 on the same signal.^1,7 The speed of the decline tells you how much risk premium is baked in. Brent fell $6.64, or 5.97%, to $104.64 in a single Wednesday session after Trump said negotiations were in their "final stages," the Guardian reported. WTI dropped $6.49, or 6.23%, to $97.66. Each fresh diplomatic signal has triggered multi-percentage-point moves within hours.⁴ But the rallies have been just as sharp. Brent climbed about 3% to a two-week high when peace talks stalled and Strait of Hormuz shipments lagged. On Thursday, Brent recovered to $105.83, up 81 cents or 0.77%, while WTI advanced 97 cents to $99.23, driven by persistent supply concerns and a drawdown in US crude inventories. The market cannot decide which scenario to price.^5,2 The physical supply picture explains the uncertainty. The US Energy Information Administration reported the largest weekly Strategic Petroleum Reserve withdrawal ever recorded, nearly 10 million barrels drawn in a single week. All 32 IEA members agreed to release 400 million barrels from strategic stocks. IEA chief Fatih Birol, speaking at the G7 finance ministers meeting in Paris, noted the release had added 2.5 million barrels per day to the market.^2,1 "Four hundred million barrels is only 20% of our resource," Birol said. "We have still 80% in our pocket." The language was intended to reassure. That it needed saying at all shows how deep the concern runs. Strategic reserves are meant for emergencies, and burning through them at this rate suggests policymakers see no quick resolution to the Hormuz blockade.¹ Iran has strengthened its control over the strait. The Hormuz route previously handled a major share of the world's oil and LNG exports. Iran's semi-official Tasnim news agency reported that Americans had accepted in a new negotiating text to waive Iran's oil sanctions, a significant departure from earlier positions. Yet the physical blockade continues even as diplomatic texts evolve.^2,6 Analyst forecasts span an extraordinary range. Citi expects ICE Brent crude front-month to reach $120 in the near term, arguing markets are underpricing prolonged supply disruption. Wood Mackenzie estimated prices could approach $200 if the Hormuz closure persists. Goldman Sachs was more conservative, raising its fourth-quarter Brent forecast to $90 and WTI to $83, citing reduced Middle Eastern output.^4,5 PVM analysts warned that global oil stocks could reach critically low levels. "Yet, as observed lately, market players are comparatively nonchalant — or complacent — about what the conflict might bring," PVM said. The gap between Citi's $120 call and the screen price below $96 captures the market's bet that diplomacy will prevail.⁴ The Brent crude price on Monday had slumped 5% from a five-month high at $70 back to $65, after the latest de-escalation signals, according to OilPrice.com. The range from $65 to $106 within the same week illustrates a market trading headlines rather than fundamentals.³ The signal to watch is whether Iran's oil sanctions waiver appears in a final deal text. If it does, Hormuz reopening timelines shorten and the risk premium collapses. If talks stall again, the IEA's remaining 80% of strategic reserves becomes the only buffer between current prices and Citi's $120 target.^6,1