Oil Rebounds 2% as Iran Peace Talks Stall and Supply Risks Mount

In Asian trade on Thursday, Brent crude increased 2.3% to $104.54 per barrel, while WTI increased 2.3% to $92.32 as markets reversed Wednesday's diplomatic-relief selloff following Iran's foreign minister's confirmation that the nation has no plans to hold direct talks with Washington while simultaneously reviewing the U.S. peace proposal. 

The market is currently governed by a contradiction: there is not enough substance to sustainably drain the geopolitical risk premium, but there is enough diplomatic signal to avoid a full panic bid.

Following news of a U.S.-backed ceasefire agreement that initially lowered some of the conflict premium built into crude, both benchmarks fell more than 2% on Wednesday. The duration of that respite was shorter than a day.

The Peace Proposal Nobody Is Accepting or Rejecting

Three Israeli cabinet sources familiar with the plan say that Trump's 15-point proposal, which was sent to Tehran through Pakistan, includes terms that explain why Iran doesn't want to go along with it. These include getting rid of stockpiles of highly enriched uranium, stopping enrichment, limiting the ballistic missile program, and cutting off funding for regional allies.

Thursday, Washington's attitude got even tougher. Karoline Leavitt, Trump's press secretary, said that the US would "hit Iran harder" if Tehran didn't admit that it had been "defeated militarily."

Tsuyoshi Ueno, a senior economist at NLI Research Institute, said, "Hope for a ceasefire has faded." "The bar set by Washington appears high, leaving oil prices vulnerable to further volatility depending on negotiations and military actions by both sides."

The Strait of Hormuz, which normally moves about one-fifth of the world's crude oil and LNG, is still not open to regular tanker traffic. The IEA has officially called this the worst breakdown of oil supplies in its history. Brent's immediate high above $119 a barrel earlier this month is still the worst-case scenario that investors are trying to avoid.

Supply Complications Piling Up Beyond Iran

Non-Middle Eastern supply issues are boosting the strategic premium. Reuters analyzed market data to estimate that Ukrainian drone assaults on infrastructure, a disputed large pipeline catastrophe, and tanker seizure have suspended at least 40% of Russia's oil exports. Three Iraqi energy specialists believe storage tanks are virtually full due to low oil production.

Sinopec will use state reserves instead of Iranian oil. Even China, Iran's biggest energy user, is boycotting Iranian crude throughout the conflict, tightening global supply.

The EIA's inventory numbers from Thursday made matters even more confusing in this case. U.S. crude stocks went up by 6.93 million barrels, even though they were only supposed to go down by 1.3 million barrels. 

This boosted the total number of barrels in stock to 456.2 million, which is the highest level since June 2024. Also, distillate stocks went increased by 3.03 million barrels, while experts believed they would fall down by the same amount. The increase in inventory is a bad sign that domestic demand for refineries is going down, which partially canceled out the geopolitical bid.

On Thursday, Japan added a fresh layer when Prime Minister Sanae Takaichi directly urged IEA director Fatih Birol for an extra planned IEA stockpile release. This revealed how weak Tokyo is because it derives most of its oil from the Middle East (approximately 90%).

Crude is trapped between a supply picture that is getting worse and a diplomatic process that is taking longer than the markets would want. The short-term range is still $100 to $107 for Brent, with a lot of upside potential until the Hormuz scenario shows real development or the Iran plan gets a strong counter-response.