Oil Swings Wildly as Hormuz Clashes Shake the Ceasefire Illusion

One of the most confusing days in the already confusing oil market happened on Friday. In the Strait of Hormuz, where there has been, at least on paper, a ceasefire since April, US and Iranian troops fired at each other.

After hearing the news, the price of Brent oil rose almost 3% to $103 a barrel. It then fell back to around $100. Trump said that the raids on Iran were "just a love tap." The government-run media in Iran said things were "back to normal." The market has been going back and forth between $96 and $108 in just one trading session this week, and neither comment did much to calm things down.

Wednesday alone showed the problem. Ole R. Hvalbye, an analyst at SEB Commodities, called it a "violent" session. Brent hit a high of $108.8 per barrel in the morning, fell to a low of $96.8 in the afternoon, and then gained back about half of the loss before the market closed.

The price going up and down by $12 in one day is not a sign of a well-informed market; it shows that traders don't know what to think.

The Number Futures Traders Keep Ignoring

The main trend of the Brent price around $98–$103 doesn't tell you this: the real oil market is in a lot more trouble than that number suggests.

Dated Brent, which is made up of real barrels that can be delivered right away instead of paper contracts for months in the future, has been selling above $130 per barrel. Other types of Middle Eastern crude have gone over $135.

The most important spread right now is the difference between what futures say and what refiners are actually paying for barrels. It has grown a lot in the last few weeks..

In a study released Friday, BMI analysts, which is part of Fitch Solutions, made it very clear how things work: Dated Brent shows the real competition for crude, and when it varies a lot from front-month futures, it means that physical conditions are getting tighter than the paper markets have fully taken in.

In the end, they came to the clear conclusion that "futures prices are struggling to provide a stable signal of underlying market conditions" and that the growing spread is due to "emerging shortages in physical supply" rather than "speculative noise."

The actual effect of this difference is being felt most by refiners. Shipping costs, war risk insurance fees, and fuel costs are all going up, which is making it so that some refineries can't afford to run at full capacity.

Fuel supply gets even tighter when refiners cut back on production. Stocks run out faster, and the next user has even worse economics. The $100 price of Brent futures doesn't send the right message in this feedback loop.

According to BMI, physical prices will stay high in May before going down, but only "after a clear peace agreement and a move toward normalisation of vessel traffic through the Persian Gulf." Neither of those things is true right now.

Two Opposite Forces, One Very Confused Market

Naeem Aslam, CIO at Zaye Capital Markets, gave the clearest picture of where crude stands right now: traders are weighing peace news, which slows down panic buying, and military threats, which keep the war premium alive. Both are true. Neither one is stronger. It makes the market move very quickly in both ways without forming a long-term trend.

The Strait of Hormuz is still the main point of pressure, and not just for crude oil. Aslam said that any problems with the waterway affect shipping, refining, the price of jet fuel for airlines, freight rates and people's predictions of inflation around the world.

This is no longer just a local energy story; it's a macro variable that affects decisions made by central banks, business earnings, and consumer prices on several continents.

IAG, the company that owns British Airways, put numbers on how vulnerable the flight industry is. Friday: The company now thinks that fuel costs will reach €9 billion this year, which is about €2 billion more than last year. Since the war started, the price of jet fuel has gone up by about 50%.

IAG said it had locked in prices for about 70% of its remaining fuel needs in 2026 and doesn't see any problems with supply right now. However, a 5% drop in its share price Friday morning shows that the markets aren't very pleased by that hedge.

The Ceasefire Isn't What Either Side Is Pretending It Is

The exchange of fire on Friday should be looked at more closely than the diplomatic wording around it suggests. At first, Iran's military said that the US was breaking the ceasefire by shooting at Iranian ships, including an oil tanker, that were moving toward the Strait of Hormuz. It said that Iranian troops responded to attacks from the air along the coast near the strait, damaging US ships "significantly." The US Central Command said that its ships were not hit and that the strikes were necessary to defend itself against Iran's unprovoked attack.

Trump admitted that three US warships were involved. He also said that several Iranian small boats were "completely destroyed" and that missiles aimed at US ships were "easily knocked down." While this was going on, he told reporters that talks with Iran were still going on and that "the talks are going very well." The government-run media in Iran said that things were "back to normal."

It was no surprise that none of it moved the markets. Huifeng Chang, an economics researcher at the National University of Singapore, correctly described how traders see the situation: the ceasefire is seen as "fragile," and Friday's fighting only supports that view, no matter what the two governments say in public. IG's top market analyst, Chris Beauchamp, was more direct: "Even a start to negotiation seems a long way off."

The war began on February 28 when the US and Israel struck Iran. Oil was selling for about $70 a barrel before it began. From $70 to $100 or more—with actual barrels going over $130—the price has gone up because of problems with the Hormuz Strait for more than ten weeks, damage to infrastructure across the Gulf, and repeated promises that things would get better, only for things to get worse again.

What the Labor Market Data Added to an Already Complicated Picture

Besides the global noise, Friday's session had a lot of US economic data that added another factor to the mood around oil.

The first jobless claims for the week ending May 2 were 200,000, which was less than the 205,000 expected but more than the 170,000 that had been reported before. Continuing claims came in at 1.766 million, which was less than the 1.800 million that was predicted. According to Aslam, the job market is "cooling slightly, but not enough to suggest fuel demand is collapsing." For crude, stable jobs protects driving demand, travel, delivery work, and general energy use, all of which are good for the demand side of the equation.

The Fed is the one who is making things hard. When the job market is strong, the Federal Reserve doesn't have to cut rates as much, which can hurt growth-sensitive crude demand in the future. Expectations about interest rates and oil demand have a wait time. It doesn't show up in the next session, but it changes the path over the next three quarters.

Average Hourly Earnings, Non-Farm Employment, and Consumer Sentiment readings that were better than expected could initially boost crude due to consumer optimism. However, the market will then have to reevaluate whether continued rate pressure eventually hurts that demand. Weaker data goes the other way—fears about demand rule in the short term, even if hopes of rate cuts in the future help risk assets. Neither case is a clean one.

What Happens If Talks Succeed — and If They Don't

SEB's Hvalbye released this week's framework with the fewest possible outcomes. It's important to give it some thought because the outcomes look so limited. He thinks that if a deal between the US and Iran is made official, it will "probably take Brent back into the $80s to the $90s quickly," as the global risk premium goes down and physical supply starts to return to normal. A break in the talks or a change of heart by Trump about military action "lands us right above $120 per barrel."

SEB keeps its risk skew to the upside. The exact alert: "another month of closure theoretically puts rest of year Brent toward $120 per barrel." They don't see that as a "tail risk"; they see it as the most likely outcome if things keep going the way they are.

The BMI system mostly agrees on the direction. Even after a diplomatic agreement is made, the Dated Brent premium will stay high for longer than futures suggest because refiners will need physical crude to fill up their empty shelves. The idea that announcing peace will instantly return the oil market to levels seen before the war is not based on reality. Damaged Gulf infrastructure, low refinery stocks, and messed up shipping routes don't go back to normal during a press conference.

Brent was around $70 before the Iran war. To get back there, there needs to be a ceasefire and a steady return to normalcy in tanker traffic. Production must also be restored at Gulf facilities that were hit by missiles and drones, and refinery stocks must be rebuilt after being depleted for more than ten weeks. It takes months, not days, to do that.

The Bottom Line for Crude This Week and Beyond

When oil prices hit $100, it looks like the market has priced in some de-escalation without actually seeing it happen. The shooting that happened in the strait on Friday shows that diplomatic messages and real-life events are still very different. Also, the fact that both sides say the truce is "still in place" after shooting at each other is not really a ceasefire in any normal sense.

As for the next levels to keep an eye on, $96 has been recent daily support during the worst selloffs related to de-escalation. The market will fall to $108–$110 if official talks fail or if there is another military escalation that makes news for a long time. If the closure lasts another month, SEB will lose more than $120. What refiners really think is that physical barrels are harder to find and cost more than any trading screen shows. This is shown by the Dated Brent premium being above $130.

The next direction of trade will depend on the macro figures released this week and the results of Trump's ongoing talks with Iran. But when Brent can go up or down $12 in a single afternoon, any trade size that doesn't take that into account is already wrong.