Oil Holds Gain as Trump Casts Doubt Over Ceasefire With Iran

Oil prices held steady on Monday after US President Donald Trump cast doubt on the ceasefire with Iran, rejecting Tehran's latest peace offer and prolonging the effective closure of the Strait of Hormuz. The development reversed earlier optimism that a diplomatic resolution could ease supply disruptions in the Middle East. The Strait of Hormuz is a critical chokepoint through which about 20% of global oil passes, and its closure has tightened physical crude markets, widening the Brent-WTI spread as seaborne grades command a premium. The rejection of Iran's offer suggests that tensions could persist, supporting prices near recent highs. OPEC+ spare capacity, primarily held by Saudi Arabia and the UAE, could theoretically offset some losses, but much of that capacity is heavy sour crude, not a perfect match for the light sweet grades typically transiting the strait. Meanwhile, US Strategic Petroleum Reserve levels remain near 40-year lows after last year's historic drawdown, limiting Washington's ability to intervene with emergency releases.

For energy traders, the renewed uncertainty over the Strait of Hormuz keeps a significant risk premium embedded in crude prices. The rejection of Iran's offer suggests that tensions could persist, supporting prices near recent highs. The crack spread—the difference between crude oil and refined product prices—has widened as refinery margins benefit from constrained feedstock supply, particularly for diesel and jet fuel. China's marginal demand, the largest driver of global oil consumption growth, remains tepid amid a sluggish economic recovery, which could cap upside if supply disruptions ease. Saudi-Russia coordination within OPEC+ has been tested by the price war earlier this year, but both producers have an interest in maintaining elevated prices, especially as Russia faces Western sanctions on its energy exports. The futures curve has shifted into backwardation, indicating near-term tightness, but a prolonged closure could push the market into deeper contango if demand falters. Traders can monitor real-time fuel quotes on NowPrice for the latest price levels as the situation evolves.

Looking ahead, market participants will focus on any further diplomatic signals from Washington and Tehran, as well as weekly US inventory data for signs of demand shifts. The potential for a full reopening of the strait remains a key downside risk, while any escalation—such as Iranian harassment of commercial vessels or US airstrikes—could drive prices higher. The upcoming OPEC+ meeting in early June will also be closely watched for any adjustments to production quotas, particularly if the strait remains closed. A diplomatic breakthrough could trigger a sharp sell-off as risk premium evaporates, but the current standoff suggests that volatility will persist, with Brent likely to trade in a $75-$85 range in the near term.