Oil rebounds on US-Iran peace deal uncertainty and inventory drawdowns

Published Thu, May 21, 2026 · 06:14 AM — Updated Thu, May 21, 2026 · 02:21 PM

[BEIJING/SINGAPORE] Oil prices edged up on Thursday (May 21), paring some previous losses as investors monitored peace talks between the US and Iran, while supply tightness and US inventory drawdowns provided some support.

Brent crude futures rose US$0.78, or 0.74 per cent, to US$105.80 a barrel by 0341 GMT, and US West Texas Intermediate futures were up US$0.84, or 0.85 per cent, at US$99.10.

Both benchmarks dropped more than 5.6 per cent on Wednesday to an over one-week low after US President Donald Trump said negotiations with Iran were in the final stages, but also threatened further attacks if Teheran did not agree to a peace deal.

“The oil market remains overly sensitive to Iran-related headlines, with participants continuing to pin considerable hope on reports that talks between the US and Iran are progressing,” ING analysts said in a note on Thursday.

“We’ve been in this situation multiple times before, which ultimately led to disappointment,” they added, forecasting the Brent price would average US$104 per barrel in the current quarter.

Iran warned against further attacks and announced steps entrenching its control of the crucial Strait of Hormuz, which before the war carried oil and liquefied natural gas shipments equal to about 20 per cent of global consumption but has been mostly closed.

On Wednesday, Iran announced a new “Persian Gulf Strait Authority,” saying there would be a “controlled maritime zone” in the Strait of Hormuz.

Iran effectively closed the strait in response to the US and Israeli attacks that started the war on Feb 28. Most of the fighting has stopped since an April ceasefire, but while Iran is limiting traffic through Hormuz, the US has blockaded its coastline.

The supply losses from the key Middle Eastern region because of the war have forced countries to pull from their commercial and strategic inventories at a rapid rate, raising concerns about draining them.

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The US Energy Information Administration (EIA) said on Wednesday the US withdrew nearly 10 million barrels of oil from its Strategic Petroleum Reserve , the biggest drawdown on record.

Underlining the impact of the supply disruptions in the Middle East was EIA data showing a bigger-than-expected decline in US crude oil inventories in the week ended May 17.

“The drawdown in oil inventories will make it difficult for oil prices to remain low,” said Gao Mingyu, chief researcher for energy and chemicals at China Futures.

“With the Strait of Hormuz blocked, global refined-product and onshore crude inventories are expected to fall below their lowest levels for this time of year in the past five years by late May and late June,” Gao said. REUTERS