- The anticipation of a potential peace agreement between the US and Iran has led to a drop in international oil prices, reaching a two-week low. Both Brent crude futures and WTI crude futures fell by nearly 5% in a single day.
- There are sporadic signs of resumption in the commercial shipping lanes of the Strait of Hormuz, with two liquefied natural gas carriers and a supertanker successfully passing through recently.
- According to the latest data from Baker Hughes (BKR:US), the number of US oil and gas drilling rigs increased by seven this week, marking the fifth consecutive week of growth and reaching a new high since June 2025.
US-Iran Doha Talks Resume, Triggering Geopolitical Premium Reversal
As optimism grows over Washington and Tehran nearing a peace agreement, the previously high geopolitical risk premium has seen a temporary reversal. On Monday, the international crude oil market experienced a significant drop, with Brent crude futures falling by $5.04, or 4.9%, to $98.50 per barrel, and US West Texas Intermediate (WTI) futures dropping by $4.82, or 5%, to $91.78 per barrel. Both main contracts hit their lowest levels since May 7. Informed officials revealed that after senior officials from both sides downplayed hopes for a rapid breakthrough, Iran's chief negotiator and foreign minister urgently arrived in Doha for face-to-face talks with Qatar's prime minister on the details of a potential agreement. Although Iranian Foreign Ministry spokesman Esmaeil Baghaei emphasized that the current negotiations focus on ending the conflict rather than nuclear issues, the resumption of the Doha dialogue has been interpreted by high-frequency trading algorithms as a precursor to easing supply-side pressures.
Short-term Supply Gap Limits Downward Space for Energy Prices
Despite headlines suggesting a marginal easing tone, commodity research institutions remain cautious about the speed of repairing the physical supply-demand structure. Sparta Commodities analyst June Goh pointed out that even if a geopolitical understanding is reached, the daily crude oil supply gap of 10 to 11 million barrels in the Middle East oil-producing region will not immediately disappear in the short term. Until local crude oil production and exports fully recover in the coming months, the global energy market will continue to deplete inventories. UBS Group (UBSG:SW) analyst Giovanni Staunovo also reiterated that the core determinant of oil price volatility remains the actual flow of physical goods. Although the physical oil flow through the Strait of Hormuz is slowly recovering, the overall flow remains strictly limited compared to pre-conflict levels. If the physical navigation flow does not show a sustained and substantial recovery, crude oil prices will continue to receive strong fundamental support above $90 per barrel.
US Shale Oil Rig Count Hits Record High, Signaling Increased Production
As geopolitical risks cool down, high forward energy prices have begun to substantially stimulate upstream capital expenditures in the US. According to the latest data released by Baker Hughes, as of the week ending May 22, the total number of US oil and gas drilling rigs, a leading indicator of future production, increased by seven to 558, reaching the highest level since June 2025. This marks the first time since February 2025 that US energy companies have recorded a fifth consecutive week of increased rig numbers. Although the current total is still about eight rigs lower than the same period last year (a decrease of 1%), the resurgence of activity among US shale oil producers in the context of global supply chain restructuring suggests that the supply increase in the Western Hemisphere will gradually be released in the second half of the year. If this trend continues, the global crude oil market's supply curve may face a structural rightward shift, leading to systemic revaluation pressure on forward crude oil valuations.
