Crude Oil Price Pullback May Be the Calm Before the Storm; Worsening Fundamentals Could Lead to Oil Prices Surging to $130

Tradingkey - Amid heightened market concerns over crude oil supply disruptions triggered by an escalation of hostilities in Iran, U.S. President Donald Trump suddenly announced on May 18 ET the postponement of military strikes against Iran originally scheduled for Tuesday, May 19.

Trump stated on social media that, at the joint request of the leaders of Qatar, Saudi Arabia, and the UAE, he has ordered the U.S. military not to carry out the strike on the 19th as planned. He noted that the U.S. and Iran are currently engaged in serious negotiations, and the aforementioned Middle Eastern leaders believe both sides will eventually reach an agreement centered on the core provision that "Iran must not possess nuclear weapons."

Trump has instructed Secretary of Defense Peter Brian Hegseth, Chairman of the Joint Chiefs of Staff John Daniel Caine, and high-ranking military officials to suspend the operation, but at the same time explicitly demanded that the U.S. military maintain the highest state of combat readiness, warning that a full-scale, large-scale military strike against Iran could be launched at any time if a satisfactory agreement is not reached.

This statement indicates that after signaling war for several consecutive days, the Trump administration hit the brakes at the last minute. While geopolitical tensions in the Middle East have eased for the time being, the risk of military action has not been fully eliminated.

Following this, WTI crude oil futures briefly dipped below the $100 mark yesterday, reaching a low of $98.60, while Brent crude hit a low of $106.87, similarly breaking below the $110 threshold. As of the time of writing, WTI futures fell 1.29% to $103.03, and Brent crude dropped 1.56% to $110.35.

Although the core uncertainty in the global crude market remains focused on the transit status of the Strait of Hormuz, any substantive progress in U.S.-Iran negotiations will clearly weigh on oil prices in the short term. Conversely, if negotiations remain deadlocked or tanker traffic experiences further standstills, the already fragile supply-demand balance will be swiftly disrupted, posing a risk of a significant upward surge in oil prices.

However, it is important to note that the continued deterioration of crude oil fundamentals should not be underestimated.

According to an EIA report, Iraq, Saudi Arabia, Kuwait, the UAE, Qatar, and Bahrain collectively shut down 10.5 million barrels per day (bpd) of crude production in April. The EIA assumes the Strait of Hormuz will remain closed until the end of May, with shipping only beginning to recover in June, though regional output is not expected to return to pre-conflict levels throughout 2026. The UAE officially withdrew from OPEC on May 1, a move that reduced OPEC's expected spare capacity from 3.8 million bpd to 2.5 million bpd, further weakening the global buffer against supply shocks.

Bank of America warned in its latest industry report that the global crude market is facing an "unprecedented structural supply-demand gap," with a daily supply deficit of 14 to 15 million barrels, accounting for approximately 14% to 15% of total global demand. The bank's analysts explicitly pointed out that international oil prices will only have the fundamental basis to return to the $60-$70 per barrel range once this massive supply-demand gap is substantively filled.

BofA further stated that the Strait of Hormuz crisis is unlikely to be resolved in the short term, and global crude supply will remain under pressure. If the dual blockade of the Strait of Hormuz continues, oil prices could gradually climb to $120–$130 per barrel between late June and early July.

JPMorgan similarly issued a fundamental warning: If the Strait of Hormuz remains blocked for another four weeks, the world will face a catastrophic "cliff-like" shortage of crude oil.