July WTI crude settled at $88.60 on Thursday, May 28, finishing the week down $8.40, or 8.66%, after prices swung sharply on reports of diplomatic progress between Washington and Tehran.
The decline continued into Friday as oil futures fell around 2% and were on track for their steepest weekly drop since early April after reported sources saying U.S. and Iranian negotiators had agreed to extend a ceasefire by 60 days and lift shipping restrictions, pending approvals.
Traders pushed crude oil prices today lower from a range that saw July WTI trade between $94.70 and $87.11 through Thursday, stripping out the geopolitical premium that had been buoying the market in recent weeks.
“The market's already taking the view that a deal's going to be done and the Strait is going to be open,” said Jason Wong, who noted that traders were pricing in a reopening of a major shipping route. He added that the market’s reaction essentially removes a tail risk of catastrophic disruption, but it is not a signal that oil should plunge by another large chunk.
The move in oil came alongside gains in equities. MSCI’s world stocks index rose 0.4% to a record high on Friday, and the S&P 500 closed at a record 7,563.63 on Thursday, underscoring a rotation out of energy risk into broader risk assets as investors digested the ceasefire reports.
That recalibration comes even as several supply-side factors that supported prices remained in place. Traffic through the Strait of Hormuz was still severely disrupted during the week, inventories continued to decline, and significant production losses across parts of the Middle East had not yet been restored — realities traders did not ignore even as they pared the geopolitical premium.
The sudden easing in market fear rests on an imperfect picture. ’ Friday report described an agreement in principle to extend the ceasefire and lift shipping restrictions, but the deal had not been signed: Donald Trump had yet to approve the reported deal, and Iranian state media said the arrangement was not finalised. That gap between market interpretation and on-the-ground confirmation is the source of new volatility.
For now, traders appear to be betting that diplomacy will blunt the worst-case scenarios that had pushed prices higher — namely a full-scale military escalation that would threaten exports and chokepoints. But stripping that premium away leaves prices exposed to the remaining physical constraints: lower inventories, unrepaired production outages and ongoing disruptions in the Strait.
The single most consequential question now is whether the reported ceasefire extension and the lifting of shipping restrictions will be formally approved and implemented. If they are, the market’s repricing makes sense and downward pressure on prices could persist; if they are not, the geopolitical risk premium could snap back quickly and sharply.
Until that approval comes, oil will likely trade on a knife edge — sensitive to diplomatic signals and to the same supply facts that kept prices elevated even as traders dialed back a panic premium.
