Key Highlights

  • WTI crude rose 3% to $90 per barrel on Monday; Brent gained to $93.17, reversing last week's deal-optimism losses.
  • Weekend draft proposal exchanges between Washington and Tehran produced no verifiable breakthrough.
  • Trump has tied any agreement to Iran's full nuclear programme halt and unconditional Hormuz reopening.
  • US and Iranian forces exchanged strikes, with Kuwait air defences also activated.
  • Israel orders deeper military push into Lebanon, complicating Iran ceasefire and Hezbollah inclusion demands.

What Happened Over the Weekend

Oil prices climbed sharply on Monday as a weekend of military exchanges and inconclusive diplomacy erased hopes of a near-term resolution to the US-Iran conflict. WTI crude recovered toward $90 per barrel and Brent cleared $93, reversing losses from the prior week when markets had briefly priced in the possibility of a ceasefire extension.

Over the weekend, US Central Command struck Iranian radar installations and drone control sites along Iran's Gulf coast, citing the downing of an American MQ-1 drone over international waters as the trigger. Iran's Islamic Revolutionary Guard Corps responded by targeting a US air base, without identifying the location. Air defence systems in Kuwait were subsequently activated as sirens sounded across the country.

On the diplomatic front, both sides exchanged revised drafts of a proposed agreement that would extend the existing truce and reopen the Strait of Hormuz to commercial shipping. Neither side confirmed progress. President Trump separately reaffirmed that any deal must include a verifiable halt to Iran's nuclear programme and the full, unconditional restoration of Hormuz as an open international waterway, conditions Tehran has shown no readiness to accept without substantial concessions in return.

Why the Market Reacted the Way It Did

Last week, oil had posted a monthly decline as traders assigned rising probability to a durable agreement. Monday's Reversal reflects the unwinding of that bet. The conflict has now effectively removed one-fifth of global oil and gas Supply from world markets since late February, and the pathway to restoring it remains blocked on multiple fronts.

Even if a deal were signed promptly, Hormuz cannot be reopened overnight. Iran has continued laying naval mines in the strait, a practice the US identified as a ceasefire violation. Mine-clearing operations in a contested waterway take weeks at minimum and require a degree of bilateral cooperation that does not currently exist. Analysts have noted that supply relief, when it arrives, will be gradual rather than immediate.

Diplomacy Blocked From Multiple Directions

The negotiations face structural obstacles beyond the military exchanges. Tehran is demanding sanctions relief and the release of tens of billions of dollars in frozen oil revenues held in foreign banks. These conditions sit well outside what Washington has signalled it is prepared to offer.

Israel's ongoing campaign in Lebanon adds further complexity. Prime Minister Benjamin Netanyahu ordered a deeper military push into Lebanese territory over the weekend, extending operations against Hezbollah. Iran has insisted that Hezbollah must be included in any comprehensive settlement. The US has proposed a phased de-escalation framework under which Hezbollah would halt attacks on Israel in exchange for a freeze on Israeli escalation in Beirut. Whether Netanyahu accepts that framework remains unresolved.

Demand Weakness Cannot Offset the Supply Gap

Chinese Manufacturing activity stalled in May, weighed down by export contraction and cost pressures. European demand conditions are similarly soft. Goldman Sachs identified both as material downside risks to its fourth-quarter Brent forecast of $90 per barrel and WTI forecast of $83.

Under normal supply conditions, this combination of slowing industrial demand in China and subdued European consumption would push prices lower. The Hormuz closure has neutralised that mechanism. Supply Scarcity is overriding demand softness, and will continue to do so until the strait reopens. That timeline remains unknown.