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Weekly Crude Prices Slip as Geopolitical Optimism Fades, Inventory Drawdowns Deepen

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Crude benchmarks retreated over the week, with both WTI and Brent erasing prior gains as early optimism around a paused US military strike faded amid persistent supply bottlenecks and steep draws in US commercial inventories.

West Texas Intermediate settled at $97 per barrel, down from $105.66/bbl the previous week, while Brent closed at $101.14/bbl, down from $109.18/bbl a week earlier.

Futures began the week on a weaker note as profit-taking kicked in fueled by the lack of tangible progress in Middle East talks following the bilateral meeting between US President Donald Trump and Chinese President Xi Jinping.

Prices slid further after Trump posted on Truth Social that he had paused a scheduled military strike on Iran at Qatar's request, followed by statements at the White House Congressional Picnic indicating the war would end "very quickly."

However, this mid-week optimism collapsed by Thursday, forcing a sharp weekend rally.

"While there are signs of optimism, uncertainty reigns," ING analysts noted.

Beneath the shifting political rhetoric, the structural reality of global supply disruptions provided a hard floor for prices.

The strategic Strait of Hormuz continues to operate at a mere fraction of its pre-war baseline, keeping roughly one-fifth of global oil supply heavily choked.

The prolonged disruption in Hormuz has driven a sharp drawdown in global crude and fuel inventories, while the International Energy Agency reiterated its readiness to release additional emergency stockpiles if supply pressures intensify further, said Soojin Kim, research analyst at MUFG.

While J.P. Morgan analysts noted that the accelerating pace of global inventory depletion must ultimately force the chokepoint to reopen, they cautioned that even a June resumption would leave broader balances tight into the second half of the year.

On the supply side, the American Petroleum Institute initially reported a massive 9.1-million-barrel drop in US commercial crude stocks, which was later confirmed by the US Energy Information Administration, showing a 7.9-million-barrel weekly drawdown to 445 million barrels.

Additionally, US Strategic Petroleum Reserve inventories fell to 374.2 million barrels for the week ended May 15, down from 384.1 million barrels a week ago, marking a weekly decline of 9.9 mmbbls, EIA data showed.

HFI Research projected that, using the US inventory as a barometer, Brent is fundamentally positioned to breach $120//bbl within a month.

Hopes for an imminent peace deal evaporated following a Reuters report revealing that Iran's Supreme Leader, Ayatollah Mojtaba Khamenei, issued a strict directive banning the export of the country's near-weapons-grade enriched uranium, directly defying Washington's core demand for complete extraction.

Geopolitical friction compounded on Friday over a disputed Iranian proposal to establish a formal tolling and transit fee system for vessels navigating the Strait of Hormuz.

Speaking at an Environmental Protection Agency event, Trump rejected the maritime tax, reiterating that the US mandates the chokepoint remain a free international waterway.

Heading into the weekend, analysts at ING concluded that energy capital flows remain ultra-sensitive, leaving the market highly vulnerable to sudden whipsaws as long as a prolonged breakdown in talks threatens catastrophic physical shortages.

On the operational side, the US oil rig count rose by 10 from 415 the previous week to 425 in the week ending May 22, according to data from Baker Hughes (BKR) released Friday. That compares with 455 oil rigs in operation a year earlier.

According to a Bloomberg analysis, this is the biggest weekly jump in crude rigs since April 2022.

The consolidated North American oil and gas rig count, a key early indicator of future production levels, rose by 21 to 696 from 675 the previous week.

Meanwhile, money managers in the WTI crude futures and options markets maintained their net long positions in the week ended May 19, according to the Commodity Futures Trading Commission's latest Commitments of Traders report released on Friday.

The data showed that money managers reported 216,414 long positions, up 2,286 from May 12, while short positions were down 6,906 to 77,640.

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