Oil Retreats on Global Demand Fears

Oil edged lower as traders assessed the extent of demand destruction against a backdrop of ongoing US-Iran peace talks, which have so far yielded little progress toward reopening the critical Strait of Hormuz.

West Texas Intermediate crude fell 2.7% to settle above $90 a barrel, while global benchmark Brent closed near $93. Open interest has been trending lower in both benchmarks as geopolitical uncertainty limits risk-taking, exacerbating price moves.

US President Donald Trump said that talks with Iran were going well, despite Tehran-backed Hezbollah rejecting a US-brokered ceasefire deal between Israel and Lebanon. Lebanese President Joseph Aoun said on CNN that Iran's use of Lebanon as a "bargaining chip" with the US is unacceptable.

Traders are also monitoring growing signs of demand destruction across the globe stemming from higher prices and depleting inventories. China's crude imports plunged in May to the lowest level in a decade and are set to languish for the coming months, as the world's top buyer cuts refinery runs and limits exports to weather the impact of the Iran War. Several leading energy forecasters are already predicting a rare year of declining demand growth.

WTI prices are down about a fifth since early April, when the US and Tehran agreed to a ceasefire. Hedge funds, meanwhile, increased their net-short stance on Brent crude to the highest since January in the week ended June 2.

"Global demand destruction continues to expand," said Dennis Kissler, senior vice president for trading at BOK Financial Securities Inc. "Crude prices are trying to find an equilibrium between tighter supplies with less demand, and yet still a high probability of an eventual peace deal."

Futures had rallied earlier in the week as renewed US-Iran clashes eroded hopes for a deal that would lead to a resumption of flows through the Strait of Hormuz, which carried about a fifth of the world's crude in peacetime. But Trump has since struck an optimistic tone, saying Wednesday the strait would reopen "immediately" if Iran signs a memorandum of understanding to halt hostilities.

Still, there was no sign of progress in talks between Tehran and Washington, with Israel's continued strikes in Lebanon becoming a major sticking point. Iran insists on a ceasefire in Lebanon before accepting a deal with the US to extend their truce and reopen the Strait of Hormuz.

Asked by reporters Thursday about Hezbollah's rejection of the Lebanon ceasefire, Trump said "they didn't reject me" and claimed "they called us" to discuss a cessation of hostilities. Axios reported that envoys Steve Witkoff and Jared Kushner consulted with nuclear experts in Tennessee that could play a role in negotiations with Iran.

In the Middle East, Oman's main oil export terminal at Mina Al Fahal saw delayed loadings after an explosion disrupted operations, according to traders. The facility sits outside Hormuz and is one of the few points Middle Eastern crude can still be loaded amid the war. Operations later resumed.

Oil Prices

• WTI for July fell 2.7% to settle at $90.54 a barrel in New York.
• Brent for August delivery edged down 2% to settle at $93.09 a barrel.