Market optimism was fueled by two major geopolitical developments.
First, President Donald Trump confirmed that Israel and Lebanon entered a 10-day ceasefire, which began at 5 p.m. ET on Thursday. The agreement aims to halt the military campaign between Israel and Hezbollah, a conflict long seen as a proxy for broader US-Iran tensions.
Second, Iranian Foreign Minister Seyed Abbas Araghchi announced via X that the Strait of Hormuz is now “completely open.” However, vessels must still follow coordinated routes set by Iranian authorities.
This announcement provided immediate relief to markets concerned about a prolonged supply disruption.
Key Takeaway: President Trump welcomed the move but stated that a US naval blockade on Iranian ports remains in “FULL FORCE” until a final agreement is reached.
Trump’s “Swimmingly” Strategy and Market Messaging
While promoting economic policies in Las Vegas, President Trump expressed confidence about the ongoing conflict with Iran, which began on February 28.
“The war in Iran is going along swimmingly,” he said, adding that it could end soon. He described US and Israeli military operations as “perfect,” attributing Iran’s willingness to negotiate to military pressure.
These statements further reinforced market expectations of a near-term diplomatic resolution.
The Road to the White House Summit
To build on this momentum, the Trump administration has invited:
- Israeli Prime Minister Benjamin Netanyahu
- Lebanese President Joseph Aoun
to the White House for high-level talks – the first of their kind since 1983.
Key objectives include:
- Mutual recognition of sovereignty
- Enhanced border security
- Commitments to limit non-state militant activity
Underlying Reality: A Tight Physical Oil Market
Despite falling prices, analysts warn that the physical oil market remains extremely tight.
According to ING analysts, the divergence between market sentiment and physical supply conditions is growing.
Key Metrics:
- Disrupted Supply: ~13 million barrels per day (bpd)
- Current Status: Critical supply tightness
- Primary Risk: Breakdown of US-Iran negotiations
Even with the Strait of Hormuz open, restricted shipping routes and ongoing tensions continue to constrain global supply.
The situation could worsen if the US blockade remains in place throughout the ceasefire period.
Oil Price Outlook: Temporary Dip or New Trend?
The near-term direction of oil prices will depend heavily on upcoming diplomatic developments.
A second round of US-Iran talks could happen as early as next weekend. If negotiations lead to:
- an extended ceasefire, or
- easing of the naval blockade
then oil prices may stabilize at lower levels.
However, if talks break down, the market could see a rapid rebound driven by renewed supply fears.
Market Betting on Peace, but Risks Remain
For now, markets are pricing in optimism. However, the underlying supply constraints suggest that the energy crisis is far from resolved.
The current oil prices crash may reflect short-term sentiment rather than a lasting shift in fundamentals.