Brent drops $1.98 as Trump pauses Iran strike to pursue deal

The sell-off reversed part of Monday's rally, which had pushed both benchmarks to their highest levels since late April and early May respectively. The June West Texas Intermediate (WTI) contract, expiring Tuesday, fell a more modest 30 cents to $108.36, while the active July WTI contract dropped $1.15, or 1.1%, to $102.23 a barrel. Trump said on Monday there was a 'very good chance' a deal could be finalised shortly, framing the military stand-down as a precondition for diplomacy rather than a concession.

The underlying driver of recent price pressure has been the effective closure of the Strait of Hormuz, the waterway through which roughly one-fifth of the world's oil and liquefied natural gas (LNG) passes. With tanker movements through the strait disrupted, supply-risk premiums have been building into forward curves. ING analysts noted in a client report that 'the magnitude of supply disruptions is significant and growing more alarming each day that oil shipments remain halted', cautioning against assuming markets will simply tune out the news flow.

Brent over the last six months provides the backdrop against which Tuesday's retreat and the preceding Hormuz-driven rally can be read.

What this means for UK commercial energy buyers

Oil does not price UK gas directly, but Brent movements feed into LNG spot valuations and, through those, into National Balancing Point (NBP) forward contracts that underpin commercial electricity and gas renewals. A sustained de-escalation in the Strait of Hormuz would ease LNG supply-risk premiums currently embedded in Season-ahead and beyond-year UK curves. Conversely, if the pause in hostilities proves short-lived, those premiums reassert quickly.

Key variables shaping the next move in oil and, by extension, UK forward prices:

• Strait of Hormuz tanker activity: any resumption of normal passage removes the most acute supply-risk premium
• Iran's formal response: Tehran communicated its position via Pakistan but offered no specifics; slow progress was reported
• US sanctions posture: Iran's Tasnim news agency claimed Washington agreed to suspend sanctions on Iranian oil exports during talks; a US official denied this
• US Strategic Petroleum Reserve (SPR): a record draw of 9.9 million barrels last week brought reserves to approximately 374 million barrels, the lowest since July 2024, limiting the buffer available to offset any renewed supply shock
• Scott Bessent's 30-day extension: the US Treasury Secretary extended a sanctions exemption allowing energy-vulnerable nations to continue purchasing Russian seaborne oil, adding a secondary variable to global supply balances

The scale of the SPR draw underlines that physical markets were already tightening before Tuesday's price retreat. A 374-million-barrel reserve level leaves less headroom than at most points in the past year should hostilities resume and Hormuz traffic remain constrained.

Watch Iran's formal diplomatic response to the US pause and any verified change in Strait of Hormuz tanker flows. Those two data points, more than the headline political statements, will determine whether Tuesday's price retreat holds or reverses into the NBP forward curve through the coming sessions.