Oil prices extended retreat as expectations of a US-Iran agreement to end the Middle East conflict gathered pace, Rystad Energy strategists said in a note on Wednesday, adding that any recovery in physical supply would lag behind moves in futures markets.
Rystad analysts said reports of a potential deal have gained credibility, with Pakistan's foreign ministry saying it expects a resolution "very soon," while the US anticipates a response from Iran within 48 hours.
"A deal announcement would move futures further immediately, in fact even the potential of a deal is already triggering a decline in oil prices. However, the physical market does not run on political timelines," said Paola Rodriguez-Masiu, Rystad's chief oil analyst.
Rodriguez-Masiu said that even under an optimistic scenario of a 30-day phased reopening of the Strait of Hormuz, volume recovery would not occur until June at the earliest.
On the shipping front, Rystad projected a structural delay of six to eight weeks between improved access conditions and normalized flows, citing the time needed for shipping insurers to reprice risk, vessel operators to verify safe passage, and for commercial confidence to return.
"Transit insurance markets need to reprice, vessel operators need verified and sustained access, and commercial confidence cannot be rebuilt overnight," the analyst said.
The framework under discussion includes a moratorium on Iran's nuclear enrichment, partial sanctions relief and a 30-day negotiating window, alongside a gradual reopening of Hormuz over the same period.
Rystad said the arrangement was "a structured pause" rather than a full resolution, warning that this distinction is critical for physical oil markets.
The consultancy expects flows to recover to about 80-90% of pre-disruption levels only by July, with downstream processing arrivals trailing into late summer.
Rystad analysts also pointed to several factors that distinguish the current situation from previous failed diplomatic efforts.
Meanwhile, China has taken a more active stance, with Foreign Minister Wang Yi calling for a comprehensive ceasefire and the swift reopening of Hormuz, while hosting Iran's top diplomat in Beijing.
Rystad said China's influence over Iranian oil revenues gives it leverage that the US lacks.
Simultaneously, President Trump has paused efforts to escort commercial vessels via the Strait, a move that Rystad analysts said creates space for negotiations.
However, Iran's Islamic Revolutionary Guard Corps has remained silent on the proposal, a departure from past episodes in which it responded to US initiatives. Rystad said the lack of comment could signal that the proposal is being considered seriously at senior levels in Iran.