Oil Prices Close 2% Lower on Uncertain Prospects for US-Iran Deal

  • Oil prices were volatile on Thursday, May 21, 2026, ultimately settling about 2% lower as uncertainty over prospects for resolving the U.S.-Israeli conflict with Iran weighed on the market. Brent crude futures settled at $102.58 a barrel, down $2.44, or 2.3%, while U.S. West Texas Intermediate (WTI) futures closed at $96.35, down 1.9%, their lowest in nearly two weeks.
  • Earlier in the session, prices had surged as much as 4% after Reuters reported that Iran's supreme leader issued a directive that dented hopes for a swift resolution to the war. However, prices later reversed course as the market weighed mixed diplomatic signals.
  • The report signalled that Tehran is hardening its stance on a key U.S. demand. The directive from Supreme Leader Ayatollah Mojtaba Khamenei could further complicate negotiations and frustrate U.S. President Donald Trump’s efforts to broker an end to the war.
  • Gains accelerated after U.S. Secretary of State Marco Rubio said a proposed tolling system in the Strait of Hormuz would make a diplomatic deal unfeasible. However, prices later pared gains after he added that officials from Pakistan, which is acting as a mediator, will travel to Iran for talks.
  • Iran also announced a new “Persian Gulf Strait Authority” to oversee a “controlled maritime zone” in the Strait of Hormuz. Further, Iran warned against further attacks and unveiled steps entrenching its control of the strait, which remains mostly closed. Before the war, the strait carried oil and liquefied natural gas (LNG) shipments equal to about 20% of global consumption.
  • Notably, supply risks remain a major concern. The start of peak summer fuel demand, combined with the lack of new oil exports from the Middle East and depleting stocks, could push the oil market into the “red zone” in July-August, according to International Energy Agency (IEA) head, Fatih Birol. Even if the Middle East conflict ended now, full oil flows through the Strait of Hormuz would not return before the first or second quarter of 2027, according to Abu Dhabi ​National Oil Company (ADNOC) CEO Sultan Al Jaber.

(Sources: Reuters)