Oil prices fall on hopes of U.S.-Iran deal despite Tehran pushback

• Trump stated he expects a deal to be signed 'over the next few days' and that the Strait of Hormuz would reopen, but Iranian state media Fars denied any draft text had been approved
• BMO Capital Markets noted oil prices remained contained despite recent U.S.-Iran strikes due to ongoing diplomacy, alternative shipping routes, and sharply lower Chinese crude imports
• Citi estimates China can maintain crude imports near 8.7 million barrels per day without depleting inventories, suggesting Chinese demand may not significantly boost prices in the near term

Market Summary: Oil Prices Decline on U.S.-Iran Deal Optimism

Key Price Movements:

Oil prices fell Friday following diplomatic developments between the U.S. and Iran. WTI crude futures for July delivery dropped 1.65% to $86.26 per barrel, while Brent crude futures for August declined 1.55% to $88.98 per barrel in early Asian trading.

Main Development:

President Donald Trump announced a framework agreement with Iran had been reached, stating he expects a deal to be signed "over the next few days." Trump indicated the Strait of Hormuz would reopen once the agreement is finalized and confirmed he had cancelled planned U.S. military strikes against Iran, citing high-level negotiations.

Conflicting Statements:

Tehran contradicted Trump's claims through state-affiliated outlet Fars, stating Iran has not approved any draft memorandum of understanding with Washington. Fars characterized Trump's announcement as backing away from military threats and suggested the U.S. has accepted Iran's proposed text, though Iran has not provided a final response.

Market Implications:

BMO Capital Markets noted oil prices have remained surprisingly contained despite recent U.S.-Iran military exchanges. Contributing factors include ongoing diplomatic efforts, alternative shipping routes around the Strait of Hormuz, and significantly reduced Chinese crude imports.

Citi highlighted that sharply lower Chinese crude imports have moderated oil prices throughout the Middle East conflict, reducing supply competition concerns. The bank estimates China can maintain imports near 8.7 million barrels per day without depleting inventories, suggesting Chinese demand may not significantly boost prices near-term.

Sector Impact:

The potential de-escalation of Middle East tensions could reduce geopolitical risk premiums in energy markets, though uncertainty remains given conflicting statements from both sides.