Oil Prices Rise as Markets Question Iran-U.S. Peace Prospects Ahead of Summer Demand Surge

BY COMFORT OGBONNA

Oil prices climbed on Friday as investors remained uncertain about the likelihood of a major breakthrough in ongoing peace discussions between the United States and Iran, while growing fuel demand ahead of the U.S. summer driving season also supported the market. Despite the rebound, crude benchmarks were still on track to record notable weekly losses after days of volatile trading driven by shifting geopolitical expectations.

Brent crude futures rose by $1.58, or 1.54%, to trade at $104.16 per barrel by 9:44 a.m. CDT (1444 GMT). U.S. West Texas Intermediate crude also advanced, gaining $1.17, or 1.21%, to reach $97.52 per barrel. Earlier in the session, both contracts had surged by more than 3% as traders reacted to fresh developments surrounding negotiations involving Tehran and Washington.

Even with Friday’s gains, both oil benchmarks remained lower for the week. Brent crude was down more than 4%, while WTI had fallen over 7% amid sharp market swings linked to speculation over a potential diplomatic resolution between the two countries. Investors have struggled to determine whether negotiations could soon lead to reduced tensions and the restoration of disrupted oil supplies.

Fresh diplomatic signals continued to influence trading sentiment. A diplomatic source in Islamabad told Iran’s state news agency IRNA that Pakistan’s army chief had departed for Iran, highlighting Islamabad’s growing role in facilitating communication between the two sides. A senior Iranian source also said that differences between Tehran and Washington had narrowed in recent days.

U.S. Secretary of State Marco Rubio acknowledged that discussions had shown encouraging progress, though he stressed that a final agreement remained distant. Speaking to reporters after a NATO ministers’ meeting in Sweden, Rubio said there were “some good signs” in the negotiations but warned that substantial work still needed to be completed before any deal could be reached.

According to Rubio, the United States has remained in regular contact with Pakistani officials involved in the mediation process. However, major disagreements continue to stand in the way of a comprehensive agreement, particularly concerning Iran’s uranium stockpile and future controls over the strategically important Strait of Hormuz.

The Strait of Hormuz remains a central concern for energy markets because it serves as one of the world’s most critical shipping routes for crude oil and natural gas. Analysts estimate that roughly one-fifth of global energy supplies passed through the strait before the outbreak of the conflict. Disruptions in the region have significantly slowed oil flows, tightening global supply and increasing fears of prolonged shortages.

Rubio also clarified that Washington had not requested assistance from NATO allies to reopen or secure the strait, despite growing concerns over maritime disruptions. Market analysts say uncertainty over shipping routes continues to add a significant geopolitical risk premium to oil prices.

Tamas Varga, an analyst at PVM Oil Associates, said traders were trying to assess how quickly a peace agreement could be achieved while balancing concerns about rapidly declining global oil inventories. He noted that oil flows through the Strait of Hormuz had slowed dramatically, worsening the supply squeeze already affecting global markets.

According to Varga, expectations that a truce could eventually be reached, combined with cautious market sentiment whenever Brent crude approaches the $110 mark, have prevented oil prices from surging even higher despite the severe supply disruptions.

Separately, a Qatari delegation reportedly arrived in Tehran on Friday in coordination with the United States in an effort to help secure a diplomatic settlement. Sources familiar with the matter said the talks were aimed at reducing tensions and finding a pathway toward restoring stability in the region.

The conflict has now entered its sixth week since a fragile ceasefire took effect, but efforts to formally end the U.S.-Israeli war with Iran have produced little concrete progress. The prolonged uncertainty has intensified worries about inflation, with elevated energy prices threatening to weaken the outlook for the global economy and increase costs for consumers and businesses worldwide.

Analysts at BMI, a unit of Fitch Solutions, recently raised their average 2026 Brent crude price forecast to $90 per barrel from $81.50. The revised outlook reflects expectations of a prolonged supply deficit, the lengthy process required to repair damaged Gulf energy infrastructure, and an estimated six-to-eight-week recovery period even after hostilities eventually end.

Industry experts estimate that the conflict has removed nearly 14 million barrels per day of oil from global markets, representing about 14% of worldwide supply. The disruptions have affected exports from major producers including Saudi Arabia, Iraq, the United Arab Emirates, and Kuwait, further tightening available supplies.

The head of Abu Dhabi National Oil Company, ADNOC, warned that full oil flows through the Strait of Hormuz may not return until the first or second quarter of 2027, even if the conflict were to end immediately. That outlook has reinforced concerns that energy markets could face prolonged instability for several years.

Meanwhile, China’s refined fuel exports in June are expected to rise only slightly compared to May levels, according to trade sources familiar with the matter. Chinese authorities are reportedly prioritizing domestic fuel demand amid ongoing uncertainty in global energy markets. Exports are projected to reach around 550,000 metric tons in June, up modestly from approximately 500,000 tons expected in May.

Attention is also turning toward the upcoming June 7 meeting of OPEC+ producers. Sources familiar with the discussions said seven major oil-producing countries within the alliance are likely to approve a modest increase in July production. However, analysts caution that supply gains may remain limited because several producers continue to face logistical disruptions linked to the ongoing conflict in the Gulf region.