Crude oil prices have been swinging sharply as investors struggle to assess whether the latest Middle East tensions will spiral into a prolonged supply crisis or fade into another short-lived commodity shock.

Crude oil prices had surged above $110 per barrel last week amid fears of renewed military escalation involving Iran and concerns over disruptions through the Strait of Hormuz — one of the world’s most critical energy chokepoints. However, prices have since cooled as signs of improving tanker movement through the region eased some immediate supply worries.

However, oil prices rebounded on Friday, 20 May, after three consecutive sessions of losses as fresh comments from Iran on uranium stockpiles and the Strait of Hormuz tempered earlier optimism surrounding progress in negotiations with the United States.

Brent crude futures climbed back above $104 per barrel, although the benchmark remains down more than 4% for the week. Meanwhile, West Texas Intermediate (WTI) crude advanced toward the $98-per-barrel mark.

The recovery in prices came after Iran indicated that the latest proposal from the United States had helped narrow differences between the two sides. However, hopes of a breakthrough were clouded after Iran’s Supreme Leader reiterated Tehran’s intention to retain its uranium reserves, while tensions also resurfaced over shipping tolls and transit conditions in the Strait of Hormuz.

The mixed signals from both sides added to uncertainty in global energy markets, leaving traders unclear about whether diplomatic negotiations were moving any closer to a final agreement.

According to Norbert Rücker, Head of Economics and Next Generation Research at Julius Baer, the current oil market environment resembles a prolonged battle between geopolitical tensions and pragmatic trade realities.

“Observing the oil market feels like watching a tug of war tournament. Escalation concerns have dissipated again, and trade through Hormuz shows some signs of life,” said Norbert Rücker, Head Economics and Next Generation Research at Julius Baer.

The Strait of Hormuz situation

The analyst noted that while political negotiations between the United States and Iran remain uncertain, improving tanker movement through Hormuz suggests that bilateral arrangements between oil exporters, buyers and Iran may already be helping partially restore trade activity.

Over the past two weeks, several very large crude carriers, along with smaller vessels and liquefied natural gas tankers, have reportedly exited the Gulf and resumed journeys toward Asia. Although traffic remains well below pre-conflict levels, the gradual recovery is helping ease supply shock concerns.

Rücker added that some of the shipments include vessels linked not only to China and other Asian countries maintaining ties with Iran, but also to South Korea, indicating broader interest in restoring trade flows.

The report also highlighted that the reopening of shipping activity could eventually encourage more participants to resume trade through the region because Gulf oil exporters, Asian buyers and Iran all share a strong economic interest in stabilising energy flows.

Is the worst over? Oil market adapting to supply shock

Apart from improving trade movement, the oil market is also drawing support from global inventories and rising exports from major producing nations.

Rücker observed that storage levels are falling rapidly because the oil market is currently operating in a supply deficit environment. He said the United States, alongside China and other countries, has increasingly become the supplier of last resort.

US exports of crude oil and refined products have reportedly risen significantly since April, helping offset shortages in global markets while simultaneously reducing domestic storage levels in the United States.

The analyst also pointed out that fears surrounding jet fuel shortages in Europe have started easing as logistics and refining disruptions gradually stabilise.

“Global commercial and strategic storage can keep the oil market well supplied beyond the summer should the current gridlock persist. However, an unchanged situation seems to be the least likely scenario going forward,” added the expert

How long will the oil crisis continue?

According to the report, the biggest risks to oil markets would emerge if critical infrastructure suffers major damage or if the conflict drags on long enough to trigger widespread demand destruction through extremely high prices.

Despite the uncertainty, the global economy has so far shown resilience, partly because improving trade routes have reduced logistics costs, refining premiums and fuel price pressures in several regions outside the United States.

As per Rücker, the current oil shock still appears consistent with historical geopolitical crises that caused sharp but temporary price spikes rather than permanent structural shortages.

“Our views are unchanged; the current crisis should follow the historical pattern of a short-lived but intense price shock. We see oil trading meaningfully lower later this year,” said Norbert Rücker, Head Economics and Next Generation Research at Julius Baer.

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