Oil Falls as Trump Holds Fire on Iran

President Trump warned Sunday that "the Clock is Ticking" for Iran to accept a peace agreement , then told reporters Monday he was holding off a scheduled military strike. Over the weekend Mr. Trump insisted it is the U.S., not Iran, in control of the vital shipping lanes, despite traffic remaining virtually gridlocked in the strait . Oil futures fell sharply on the news. Per market data, WTI crude traded at $71.50 per barrel on Monday, up 0.6% from Friday, while Brent stood at $75.20, up 0.5%.

The diplomatic maneuvering comes as the closure of the strait became the largest disruption to world energy supply since the 1970s energy crisis as well as the largest in the history of the world oil market . The IRGC announced closure to US and Israel-allied shipping on March 2, 2026. The IEA has called it the largest supply disruption in the history of the oil market . The closure of the Strait of Hormuz has created a catastrophic supply shock for oil markets where almost 16 million barrels per day (mbpd) of crude oil flow are disrupted. Our baseline assumption assumes 2026 crude exports are roughly 16-17 mbpd , according to ABN AMRO.

Can Russian Oil Fill the Gap?

US Treasury Secretary Scott Bessent on Monday announced another 30-day extension of a sanctions waiver allowing purchases of Russian seaborne oil to aid "energy-vulnerable" countries hit by the Iran war, reversing plans not to grant an extension , the Korea Herald reported. Bessent said in a posting on X that the Treasury was issuing the 30-day general license after a previous waiver lapsed Saturday. This will allow temporary access to Russian oil and petroleum products stranded on tankers without violating severe US sanctions on Russian oil majors, he said .

The waiver has become a political flashpoint. Two senior Democratic senators, Jeanne Shaheen of New Hampshire, and Elizabeth Warren of Massachusetts, blasted the move as an "indefensible gift" to Russian President Vladimir Putin. "Every additional dollar the Kremlin earns from this license helps Putin finance his illegal war against Ukraine and kill innocent Ukrainians," they said in a statement . European allies share the concern. EU officials have criticized Washington's decision to waive sanctions on Russian oil, with Commission President Ursula von der Leyen saying it is "not the time to relax sanctions against Russia" , RT reported.

But some countries, including India and Indonesia, had lobbied the Trump administration for extended sanctions waivers, as the Iran war and the near-closure of the Strait of Hormuz deprive global markets of millions of barrels of crude daily. He told a Senate panel the shift came after "more than 10 of the most vulnerable and poorest countries in terms of energy" approached him seeking an extension , according to Fortune. Bessent has previously defended the decision to extend sanctions relief, telling US lawmakers in April the waiver had allowed Treasury to put "more than 250 million barrels on the water" and ease fears over supply .

What's the Real Cost to American Consumers?

Gulf states and Iraq lose approximately $1.1 billion per day in oil revenue while the strait remains closed , according to SolAbility's cost model. But the pain extends far beyond the Middle East. OilPrice.com reports that as U.S. drivers face the highest Memorial Day gasoline prices in four years, American consumers are paying billions of dollars more on gas and diesel than they did a year ago . The article notes that the global oil supply shock, created by the Iran war and the closure of the Strait of Hormuz, is affecting Americans disproportionately. The lower-income households are being hit the most as their purchasing power is being eroded by $45 billion in extra costs on fuel compared to a year ago .

This is why many oil producers, starting with Iraq and Kuwait, started curtailing their production in early March 2026. A complete cessation of oil exports from the Gulf region amounts to removing close to 20 percent of global oil supplies from the market, about 80 percent of which is shipped to Asia , the Dallas Fed explained. Regardless of the likelihood of the Strait reopening in the future, the model implies that a closure of the Strait of Hormuz that removes close to 20 percent of global oil supplies from the market during second quarter 2026 is expected to raise the average West Texas Intermediate (WTI) price of oil to $98 per barrel and lower global real GDP growth by an annualized 2.9 percentage points in second quarter 2026 .

Where Is New Supply Coming From?

Brazil's offshore boom couldn't have come at a better moment. Brazil's oil production hit a record 4.24 million barrels per day in March 2026, driven largely by ultra-deepwater pre-salt developments in the Santos Basin. Data from Brazil's hydrocarbon regulator, the National Agency of Petroleum, Natural Gas and Biofuels (ANP), shows oil production hit 4.24 million barrels for March 2026. This represents a notable 4.6% increase over the month prior and is a whopping 17.3% greater year over year , OilPrice.com reported.

The timing matters. Amid a scenario in which global oil supply faces challenges caused by the war in Iran, Brazil set a record for oil and gas production in March. In the same month, coinciding with the beginning of the war triggered by US and Israeli attacks on Iran and Lebanon, Brazil produced 5.531 million barrels of oil equivalent per day (boe/d), surpassing the previous record of 5.304 million boe/d set in February , according to Agência Brasil. That's enough to run Japan for roughly three weeks.

Petrobras recently announced that its entire upstream portfolio has an average breakeven price of a mere $25 per barrel, one of the lowest in the industry. Overall, Brazil's pre-salt oilfields have industry-low breakeven prices estimated to be $30 to $40 per barrel, making them extremely attractive for foreign energy companies . With Brent trading above $75, Brazilian producers are printing money. The driller, where the government owns 37%, is planning to invest $109 billion between 2026 and 2030. Importantly, $78 billion or 71.6% of that capital spending will be directed to Petrobras exploration and production facilities, with most to be spent on the company's prolific pre-salt operations .

What About Natural Gas?

Natural gas markets are moving in the opposite direction. June natural gas futures pushed to a seven-week high Monday, with hotter summer forecasts and a brewing technical squeeze powering a rally through a choppy session driven by competing US-Iran headlines , Natural Gas Intel reported. Per market data, Henry Hub natural gas traded at $3.25 per MMBtu on Monday, down 2.4% from Friday.

The summer setup looks constructive. Natural gas-fired power burn is on track for a record 40.3 Bcf/d this summer as lower prices accelerate coal-to-gas switching, and data center load lifts baseload demand, the Natural Gas Supply Association (NGSA) said in its 2026 Summer Outlook released Wednesday . But supply remains ample. Working gas in storage stood at 2,290 Bcf as of 8 May 2026, 140 Bcf above the five-year average and 51 Bcf above year-earlier levels , according to EBC Financial Group.

We expect the Henry Hub price to average about $3.50/MMBtu in 2026 and $3.18/MMBtu in 2027. We expect L48 production to steadily increase throughout our forecast period, averaging 118.9 Bcf/d in 2026 and 124.0 Bcf/d in 2027 , the EIA said in its latest Short-Term Energy Outlook.

What Changed This Week

Trump's decision to delay military action sent crude futures down over 2% Monday, but the fundamental picture remains tight. The Strait of Hormuz is still effectively closed to most commercial traffic, stranding 16 million barrels per day of crude exports. Washington extended its controversial Russian oil waiver for another 30 days, prioritizing supply relief over sanctions enforcement. Meanwhile, Brazil's record production growth is providing a crucial non-Middle Eastern supply cushion at breakeven prices that make current market levels highly profitable.

What to Watch

The ceasefire talks between the US and Iran remain the critical variable. The Reuters news agency also quoted a Pakistani source as saying Monday that a revised Iranian proposal had been shared with U.S. representatives. "We don't have much time," the source said, telling Reuters that both sides in the war, "keep changing their goalposts" . The next Russian oil waiver decision will come in mid-June. Brazil's ANP will release April production data in early June, which should show whether the record growth trajectory is holding. And the EIA's weekly natural gas storage reports through May will signal whether summer heat is starting to tighten the market or if the 140 Bcf surplus can absorb cooling demand without a sustained price rally.