Oil prices recovered more than 1% on Thursday as investors continued to monitor the uncertainty surrounding peace talks between the United States and Iran. Although hopes for a potential agreement had previously pressured crude prices lower, concerns over supply tightness and sharp inventory drawdowns helped oil regain momentum.

Brent crude futures rose by $1.27, or 1.21%, to $106.29 per barrel, while U.S. West Texas Intermediate crude increased by $1.29, or 1.31%, to $99.55 per barrel. The rebound came after both benchmarks fell more than 5.6% on Wednesday, reaching their lowest levels in more than a week.

Iran Headlines Continue to Drive Oil Volatility

The oil market remains highly sensitive to developments related to Iran. President Donald Trump said talks with Iran were in the final stages, but also warned of further attacks if Tehran did not agree to a peace deal. This mixed signal created uncertainty for investors: peace talks may reduce geopolitical risk, but the threat of renewed attacks keeps supply concerns alive.

Analysts from ING noted that market participants are placing significant hope on reports of progress between the U.S. and Iran. However, they also warned that similar expectations have led to disappointment in the past. ING forecast Brent crude to average around $104 per barrel in the current quarter.

Strait of Hormuz Remains a Key Risk Factor

One of the biggest concerns remains the Strait of Hormuz, a crucial route for global oil and liquefied natural gas shipments. Before the war, the strait carried energy flows equivalent to about 20% of global consumption.

Iran has continued to tighten its control over the area, announcing the creation of a new “Persian Gulf Strait Authority” and a “controlled maritime zone” in the Strait of Hormuz. Although most fighting has stopped since the April ceasefire, restrictions on traffic through the strait continue to affect global energy supply.

Inventory Drawdowns Add Support to Oil Prices

Supply disruptions from the Middle East have forced countries to draw from both commercial and strategic reserves. The U.S. Energy Information Administration reported that nearly 10 million barrels were withdrawn from the Strategic Petroleum Reserve last week, marking the largest drawdown on record.

At the same time, U.S. crude inventories fell more than expected, reinforcing concerns that supply remains tight. According to Mingyu Gao, chief researcher for energy and chemicals at China Futures, falling inventories will make it difficult for oil prices to remain low.

Oil prices are likely to remain volatile as long as uncertainty around the Iran peace deal and the Strait of Hormuz continues. While diplomatic progress could ease some risk premium, restricted energy flows and declining inventories may continue to provide support for crude prices in the near term.

For investors, the key factors to watch are the outcome of U.S.-Iran negotiations, developments in the Strait of Hormuz, and further inventory data from major consuming countries.

Source: Reuters