Oil Whiplash: When Ceasefire Hopes Collide

$75.20/bbl per barrel. That's where Brent crude closed Monday, up +0.51%, according to market data—a far cry from the $98 it touched earlier in the day when Yemen's Houthis announced a complete ban on Israeli shipping in the Red Sea and Iran exchanged fire with Israel. By afternoon, Iran had signaled the latest military operation was over, and the rally evaporated. Oil traders have spent three months watching this pattern repeat: flare-ups push prices toward triple digits, diplomatic signals pull them back down, and the Strait of Hormuz stays mostly closed.

The whiplash reflects a market caught between two realities. One is geopolitical: ceasefires collapse, missiles fly, and the world's most critical energy chokepoint remains a shadow of its former self. The other is physical: inventories are draining, summer demand is building, and the cushion that has absorbed the largest supply disruption in modern history is running out.

How Long Can Inventories Mask the Shortage?

U.S. gasoline inventories fell by 47.5 million barrels between early February and late May, a drawdown that is unprecedented in EIA weekly data going back to 1990 , OilPrice.com reported Monday. The speed of the drawdown suggests the fuel market has been burning through its cushion at an unusual rate just as the summer driving season begins , according to the analysis.

The Strategic Petroleum Reserve is being drained even faster. The week ending May 15 saw a draw of roughly 9.92 million barrels, with the prior week losing another 8.61 million barrels—the two largest weekly SPR withdrawals ever recorded , according to OilPrice.com. The Strategic Petroleum Reserve now sits at just 374.2 million barrels .

Morgan Stanley analysts project stockpiles will fall below 200 million barrels by the end of August , a level that would mark historical seasonal lows. "The U.S. gasoline market is genuinely tight and tightening further into summer," Morgan Stanley analyst Martijn Rats and strategists Charlotte Firkins and Amy Gower wrote in a May 4 note.

Globally, the picture is worse. EIA data cited by Reuters showed global crude and fuel inventories falling at a pace of 5.27 million barrels per day in March and accelerating to 8.62 million barrels per day in April . Veteran analyst Paul Horsnell estimates cumulative inventory losses could approach 1.2 billion barrels, with some commercial systems approaching minimum operating levels as soon as August .

The math is unforgiving. A complete cessation of oil exports from the Gulf region amounts to removing close to 20 percent of global oil supplies from the market , the Dallas Fed noted in March. Only seven ships transited the strait on Friday, followed by four more departures over the weekend, citing data from research firm Kpler—under normal circumstances, around 100 cargo-carrying vessels pass through the waterway every day , CNN reported.

Can Diplomacy Reopen Hormuz Before Inventories Hit Bottom?

The diplomatic calendar matters more than usual. Iran has formally conditioned any peace agreement with Washington on the achievement of a ceasefire in Lebanon, meaning every time the Lebanon ceasefire collapses, it resets the diplomatic timeline for a US-Iran agreement, which in turn resets the timeline for Hormuz reopening , according to analysis published Monday.

A second ceasefire was brokered on June 3, 2026, following negotiations in Washington, but that agreement lasted less than a week before Israel launched fresh strikes on Lebanese territory on June 8 . Iran's response was immediate, launching missiles toward Israel in retaliation for the strikes on Hezbollah positions in Beirut .

Even if the strait reopens, recovery won't be instant. Oil industry experts have told OPEC+ that supply disruption caused by the closure of the Strait of Hormuz will persist to the end of the year, even if the waterway reopens promptly, echoing the views of Adnoc chief executive Sultan Al Jaber, who said that oil flows from the Middle East won't fully recover until well into 2027 , according to a report last week.

Mike Wirth, chief executive of Chevron, said rebuilding confidence would take time as shipowners assess risks and crews consider returning to routes that have been affected by months of disruption , CNN reported. Despite President Donald Trump's repeated assertions that the Strait of Hormuz is on the path to reopening, many of the world's largest shipping companies remain unwilling to return, leaving traffic at a fraction of normal levels .

Why Are the Saudis Cutting Prices Into a Supply Crisis?

In a move that puzzled some traders, Saudi oil giant Aramco reduced the price of its flagship Arab Light crude loading for Asia in July by $6 per barrel, setting it at a premium of $9.50 per barrel over the average Oman/Dubai prices , Bloomberg reported Monday. It's the second consecutive monthly cut.

The answer lies in demand destruction. China, the world's largest crude oil buyer, drastically lowered crude imports as weaker refining activity and lower refined-product exports weigh on domestic operations, with Goldman Sachs estimating global demand fell 4% to 5% in April due to reduced flows through the Strait of Hormuz , citing weaker consumption in China and Western Europe.

The price reduction was expected by Asian refiners, who had anticipated the July price of Arab Light for Asia to be slashed by $3 to $8 per barrel , according to OilPrice.com. The cuts signal that even with Hormuz mostly closed, high prices have started to curb appetite. With shipping through Hormuz severely constrained, Saudi Arabia has been rerouting crude exports via its East-West pipeline to the Red Sea port of Yanbu .

Meanwhile, Australia is adding pressure to an already tight gas market. Workers at Inpex's Ichthys liquefied natural gas export project in Australia started strikes after talks between union members and the company stalled, with workers downing tools for four hours a day , the Japan Times reported June 2. Ichthys accounts for about 2% of global output and has the capacity to export around 9.3 million tons a year, mainly to Japan—the strike stands to have an outsized impact on the market as LNG supply is down about a fifth after Qatar halted production .

The union escalated further Monday. OilPrice.com reported that workers at Australian LNG export facilities of Japanese energy firm Inpex have voted to escalate the strike action at all three sites to work stoppages of up to 8 hours per day, up from 4 hours currently, from June 11 .

What Changed This Week

Oil prices briefly touched $98 Monday before Iran signaled an end to the latest exchange of fire with Israel, erasing most gains. The Houthis announced a complete ban on Israeli shipping in the Red Sea, adding pressure to a corridor that has become critical as Hormuz remains largely closed. Saudi Arabia cut July oil prices to Asia by $6 per barrel—the second consecutive monthly reduction—as Chinese demand weakens and refiners slash runs. Australian LNG workers escalated strikes at Inpex facilities, threatening to push stoppages to eight hours per day starting June 11.

What to Watch

The next EIA Weekly Petroleum Status Report is due June 10 and will show whether gasoline inventory draws continued into early June. Watch for any movement on the Israel-Lebanon ceasefire, which Iran has made a precondition for Hormuz negotiations. OPEC+ announced a symbolic production increase of 188,000 barrels per day for July at Sunday's meeting—largely meaningless with Hormuz closed, but a signal the group won't restrict output once the crisis ends. Australian union negotiations with Inpex resume this week; any extension of the strike beyond June 23 would tighten already-strained LNG markets further.