LONDON (Realist English). Global energy prices experienced one of their sharpest declines of the past month on May 25, as active negotiations between the United States and Iran raised expectations of a memorandum of understanding that could reopen the Strait of Hormuz and ease restrictions on Iranian oil exports.
Oil: Sharp Decline on Expectations of De-escalation
Prices for the world’s two major oil benchmarks fell sharply, reaching their lowest levels since early May.
July Brent crude futures dropped 5.6% to $97.69 per barrel.
US benchmark WTI crude fell 6% to $90.80 per barrel.
Markets reacted almost instantly to diplomatic signals. After US President Donald Trump spoke of “significant progress” in negotiations, investors began selling off the “war premium” that had previously been built into energy prices.
European Gas: Following Oil Lower
Europe’s natural gas market moved in tandem with oil prices.
The Dutch TTF benchmark fell 5.6% to €45.945 per megawatt-hour.
The decline was significant enough to weaken Europe’s competitive position in securing liquefied natural gas (LNG) cargoes relative to Asian buyers.
Fundamental Factors: Supply Constraints Remain
Analysts caution that the current decline may prove temporary, as underlying market fundamentals remain tight.
The Iranian blockade had reduced tanker traffic through the Strait of Hormuz from 20 million barrels per day to 3.8 million barrels per day.
According to the US Energy Information Administration (EIA), commercial crude inventories unexpectedly fell by 7.86 million barrels on May 20 — nearly three times larger than forecast. Stocks now stand roughly 2% below the five-year average.
The International Energy Agency (IEA) reports that cumulative supply losses since the beginning of the conflict on February 28 have reached 12.8 million barrels per day, while global inventories declined by 250 million barrels during March and April.
Analysts at JPMorgan believe that even if the Strait of Hormuz reopens, oil markets will remain under pressure for some time. According to their projections, supply could shift into surplus only by September, when Gulf producers increase output.
Forecasts and Market Outlook
Major investment banks continue to issue cautious forecasts while warning of persistent volatility.
Citigroup warns that any renewed military escalation could push oil back to $120 per barrel. However, if the Strait of Hormuz is fully reopened, the bank expects prices to decline to $75 by the end of the year.
Goldman Sachs maintains its Brent forecast at $90 per barrel for the second quarter of 2026, while highlighting substantial “two-sided risks” linked to the outcome of negotiations.
The Asian Development Bank (ADB) forecasts average Brent prices of $96 per barrel in 2026 and around $80 in 2027.
The IEA published the most bearish outlook, revising down its expectations for global oil demand in 2026. The agency now expects consumption to decline by 420,000 barrels per day, citing weakness in the aviation and petrochemical sectors.
Market Awaits a Breakthrough
Global energy markets are now waiting for the possible signing of a US-Iran memorandum.
Losses from the current sell-off have already exceeded 15% from May highs, when Brent briefly reached $115 per barrel.
A full reopening of the Strait of Hormuz could eliminate the remaining war premium and trigger additional downward pressure on prices.
However, any breakdown in negotiations — whether due to hardline factions in Iran or resistance from Israel — could rapidly reverse sentiment and send oil prices back into triple-digit territory.
The coming days may prove decisive for the global energy market.
