Oil prices fell on Thursday as traders bet that a ceasefire between the United States and Iran will be extended, even as the physical market shows record levels of supply disruption and tightness.
Futures prices slip on ceasefire hopes
Oil futures fell on Thursday as markets priced in the likelihood that the ceasefire between the United States and Iran will be extended by at least two weeks, with talks raising the prospect of a longer-term deal. Brent crude futures traded around $96 per barrel, down from recent highs, as traders positioned for a diplomatic resolution and a gradual normalization of trade routes.
The ceasefire is currently set to expire on April 21. Derivative markets are effectively betting that negotiations will avert further escalation and ease constraints on global crude flows.
Physical market shows acute shortage
Behind softer futures prices, the physical oil market is signaling extreme tightness. Dated Brent for immediate delivery is trading near $117 per barrel, widening the gap with front-month futures, which closed below $95 per barrel.
That divergence highlights what analysts describe as a “market of two minds”: financial contracts reflecting optimism on diplomacy, while physical barrels are being bid up amid severe supply disruption.
The Strait of Hormuz, a critical chokepoint for Middle Eastern exports, remains effectively shut. Ship-tracking data show tanker traffic through the strait has fallen by more than 95 percent since the conflict began, leading to what analysts call the largest supply disruption in history.
According to ING analysts Warren Patterson and Ewa Manthey, around 13 million barrels per day of crude flows have been interrupted, even after accounting for diverted pipelines and limited vessel activity. They warned that this number could rise if U.S. movement restrictions are maintained.
Middle East supplies disrupted, global flows reshuffle
The sharp dislocation in Middle Eastern exports has forced a rapid reordering of global crude flows. Buyers are turning to U.S. barrels as a substitute for disrupted supplies from the Gulf, putting pressure on domestic availability.
Recent data underline the scale of this shift. The United States exported a record 12.7 million barrels per day of crude and petroleum products last week, as global buyers scrambled to secure alternative sources.
International Energy Agency figures back up the ING assessment, showing a 10.1 million barrel per day drop in global oil supply in March. The closure of Hormuz and rerouting of tankers have compounded logistical strain, extending voyage times and tightening prompt supply.
U.S. crude output flat despite rising exports
Despite surging exports, U.S. crude production has remained largely flat near 13.2 million barrels per day. Rig activity has shown little recovery since the conflict began, limiting the country’s ability to rapidly ramp up output in response to higher physical prices.
Energy Information Administration projections indicate that U.S. crude production is likely to see minimal change through the end of the year. Analysts suggest any meaningful boost from new drilling programs would not materially affect output until around 2027, assuming price levels and policy conditions support sustained reinvestment.
This leaves the United States in an unusual position: acting as a de facto swing supplier in the short term via exports and inventory management, rather than through rapid production growth.
Inventories and reserves signal real-time demand pull
Inventory data underscore the strain in the physical market. U.S. commercial crude stocks fell by 900,000 barrels last week, even as authorities released an additional 4.1 million barrels from the Strategic Petroleum Reserve.
The combined draw on commercial storage and strategic stocks indicates that real-world demand is pulling on available supply, in contrast to the relatively calm behavior of futures prices below $100 per barrel.
Physical tightness is reflected in severe backwardation, where prices for immediate delivery trade far above contracts for future delivery. This structure rewards holding and selling oil now rather than later, and typically emerges in periods of acute shortage.
Pricing split: sentiment versus fundamentals
The current market is defined by a stark split between headline-driven sentiment in derivatives and data-driven fundamentals in physical trade.
Futures markets are largely repricing based on the rising probability of a diplomatic breakthrough. The expectation of a ceasefire extension and gradual reopening of trade lanes is tempering forward prices, even as tankers are stranded and spot barrels command escalating premiums.
Analysts argue that in this environment, traders need to distinguish between:
- price moves driven by changing expectations about negotiations
- and those rooted in confirmed shifts in supply and demand
Key metrics to watch include export volumes, shipping traffic through key chokepoints, commercial inventory levels, and strategic stock releases, rather than futures curves alone.
Structural changes may outlast the conflict
The conflict and the closure of Hormuz are exposing new stress points and potential long-term changes in the global oil system. Rerouting, substitution and the rising role of U.S. crude as a flexible supply source are reshaping trade patterns.
Even if negotiations succeed and the ceasefire is extended, analysts say the experience is likely to reinforce the United States’ position as a structural swing supplier, as well as the premium placed on supply security and route diversification.
For now, the market remains split between optimism in paper and scarcity in barrels, with the balance ultimately hinging on whether diplomatic progress translates into restored flows through the Strait of Hormuz.
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