Diplomacy and Supply Jolt Oil Markets as Brent Crude Craters Below $100

Two seismic shifts hit the oil market in quick succession on Wednesday, sending Brent crude into a tailspin. The benchmark tumbled nearly 11% to settle at $98.44 a barrel, extending a seven-day rout that has now erased roughly 17% of its value.

The catalyst for the selloff came from two distinct directions. First, a potential thaw in the standoff over the Strait of Hormuz prompted traders to unwind the geopolitical risk premium that had inflated prices for months. US President Donald Trump announced "major progress" in negotiations with Tehran and suspended a planned military escort operation for commercial shipping through the strategic waterway. While the physical blockade of Iranian ports remains in place, the diplomatic overture was enough to trigger a wave of speculative position unwinding.

The price action was brutal. Brent shed more than 8% in a single session, with the day's low touching $98.44 — a far cry from the 2023 high of $118 that now looks increasingly distant. Even after the plunge, the commodity remains up roughly 66% year-to-date, underscoring how extreme the rally had been.

Behind the diplomatic breakthrough lies a proposed framework: Iran would halt uranium enrichment in exchange for US sanctions relief and the unfreezing of assets. An Iranian foreign ministry spokesman confirmed to state news agency ISNA that a US proposal is under review. If finalized, the agreement would reopen the Strait of Hormuz, which has been largely blocked since late February following a US-Israeli air campaign against Iran that killed Supreme Leader Ali Khamenei.

Should investors sell immediately? Or is it worth buying Brent Crude?

The human toll of the blockade has been severe. According to US government figures, some 23,000 seafarers remain stranded on vessels in the Persian Gulf, with only a trickle of cargo ships managing to transit the chokepoint.

Compounding the diplomatic shock, OPEC+ delivered a second blow to prices. At a virtual meeting on May 3, seven core members — including Saudi Arabia and Russia — agreed to boost June output by 188,000 barrels per day. The timing was notable: the United Arab Emirates had exited the cartel just two days earlier, on May 1. The remaining members signaled their intent to remain active in price management despite the departure.

The market is now pricing in a scenario of swelling supply — both from OPEC+ and potentially from Iran. That narrative is overwhelming signals of physical tightness. US commercial crude inventories fell by 2.3 million barrels in the latest week, while API data showed a steeper draw of roughly 8.1 million barrels. Analysts at Macquarie expect official EIA data, due Wednesday afternoon, to confirm a decline of about five million barrels, driven by robust US exports.

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Bank ING analysts have warned that the market's vulnerability is rising with each passing day of disruption. Daily supply losses from the Hormuz blockage are estimated at 13 million barrels, a gap that has been partially filled by global stockpiles. Those buffers are eroding fast.

The US Energy Information Administration expects oil prices to peak in the current second quarter, with relief arriving once shipping through the Strait of Hormuz resumes. Wednesday's EIA report will test whether the physical reality of tightening inventories can slow the selling pressure — or whether the diplomatic and OPEC+ supply narratives continue to dominate.

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