Brent crude dips below $95 as Trump signals Iran peace deal

Brent crude slipped below $95 a barrel Tuesday, retreating from monthly highs, after President Donald Trump sought to reassure traders that a peace deal with Iran is nearing completion.

"The market is pricing in flows that we hope will resume in a month, but we haven't seen that uptick yet," said Rebecca Babin, senior energy trader at CIBC Private Wealth.

Brent fell to around $94.50 in early trading, down from Monday's settlement of $94.98, after Trump said Israel would not send troops to Beirut — comments that trimmed earlier gains. The benchmark remains well above its pre-war level of roughly $70 but has declined from a near-four-year high of $118.35 reached earlier in the conflict. WTI crude also edged lower after rising 5.2% in the prior session.

The outcome carries high stakes for global energy markets. With the Strait of Hormuz closure cutting off about 14 million barrels of daily supply and commercial inventories approaching operational minimums, a failed deal could send Brent toward $150 to $160 a barrel, according to Exxon Mobil senior vice president Neil Chapman. A successful agreement, by contrast, would likely trigger further downside as the geopolitical risk premium unwinds.

Supply crisis looms as inventories drain

Global oil inventories have plummeted since Iran began disrupting transit through the Strait of Hormuz in late February, with the market losing roughly 1 billion barrels, according to the International Energy Agency. Even with alternative pipeline routes through Saudi Arabia and the UAE, the system continues to shed about 14 million barrels a day while the waterway remains closed.

Goldman Sachs strategists warned that global storage levels could hit the lowest on record since satellite tracking began in 2018 if flows do not resume by the end of June. Storage tanks with floating roofs, which make up most onshore capacity, must remain at least 20 percent full to operate, while pipelines require oil along their entire length to maintain operations.

The Biden administration's early drawdown of 400 million barrels from strategic reserves — coordinated through the IEA — has provided temporary relief, but those cushions are nearly exhausted. "Strategic stocks are meant to be the last line of defense, not the first," said Jeff Currie, co-chair of Abaxx Markets and former co-head of commodities at Goldman Sachs. "You cannot print molecules."

Market bets on diplomacy, but time is short

Futures prices have remained relatively contained despite the physical tightness, with investors betting on a diplomatic resolution. Iran's news agency reported Tuesday that Tehran is halting indirect negotiations with Washington after a new round of strikes, though Trump said talks continue.

Even if a deal is reached and commercial traffic resumes through the Strait of Hormuz, strategists say it would take months for the system to normalize. Ship owners must have confidence in safe passage, and several hundred vessels would need to make weeks-long journeys to end markets. Tens of millions of barrels of production shut across the Gulf region must also be brought back online.

"Once you get to the minimum inventory levels and all-time low inventory levels, there's only one way to go," said Neil Chapman of Exxon Mobil.

The last time oil prices approached these dynamics was in 2008, when Brent surged to $147 a barrel amid supply constraints and surging demand before collapsing alongside the global financial crisis. The current situation differs in that demand destruction has not yet materialized — but analysts warn that prices above $150 would likely trigger it quickly.

This article is for informational purposes only and does not constitute investment advice.