Crude Futures Firm on Iran Strait Tensions, U.S. Draws

Key Moments

Futures Rebound After Sharp Sell-Off

Oil prices advanced on 21 May as traders assessed progress in peace discussions between the United States and Iran against mounting evidence of tighter global supply and a significant drawdown in U.S. petroleum stocks.

By 08:09 GMT, Brent crude futures had gained $0.40, or 0.4%, to $105.42 per barrel (bbl), according to Reuters. U.S. West Texas Intermediate (WTI) futures climbed $0.50, or 0.5%, to $98.76/bbl over the same period.

The move higher followed a steep slide of more than 5.6% in both benchmarks on Wednesday, when they dropped to their lowest levels in more than a week after U.S. President Donald Trump said negotiations with Iran were close to being finalized.

Geopolitics: Strait of Hormuz and Iran-U.S. Tensions

President Trump coupled his comments on the near conclusion of talks with a warning of additional strikes if Tehran did not agree to a peace deal.

Iran responded by cautioning against further attacks and unveiling steps intended to increase its control over the Strait of Hormuz, which is described as largely closed. On Wednesday, Iran announced the creation of a “Persian Gulf Strait Authority” and declared a “controlled maritime zone” in the Strait of Hormuz.

The strait was shut by Iran after U.S. and Israeli attacks that triggered the conflict in February this year. Although hostilities eased following a ceasefire in April, Iran continues to limit traffic through Hormuz, while the United States maintains a blockade along Iran’s coastline.

Prior to the conflict, the Strait of Hormuz handled oil and liquefied natural gas (LNG) flows equivalent to about 20% of global consumption. The war and associated supply disruptions in this critical Middle Eastern transit route have forced many countries to draw down commercial and strategic stockpiles at a rapid pace.

Inventory Draws Highlight Supply Strain

The U.S. Energy Information Administration (EIA) reported a record withdrawal of roughly ten million barrels from the Strategic Petroleum Reserve last week. The EIA also recorded an unexpectedly large drop in U.S. crude inventories, underscoring the effect of supply interruptions.

Ship Movements Through a Restricted Hormuz

Despite restrictions, some oil flows have resumed through the Strait of Hormuz. Shipping data from LSEG and Kpler cited by Reuters showed that three supertankers passed through the strait on Wednesday. These vessels are bound for Asian buyers after being held in the Gulf for more than two months carrying six million barrels (mbbl) of Middle Eastern crude.

Under the same transit conditions set by Iran, several additional vessels transited the route, including the South Korean very large crude carrier (VLCC) Universal Winner. The Universal Winner, loaded with 2mbbl of Kuwaiti crude, exited the strait and is heading to Ulsan, South Korea, where it is scheduled to discharge on 9 June at SK Energy’s refinery.