Oil prices dropped sharply, as Brent crude fell by nearly $6 per barrel

Oil prices dropped sharply on May 25, falling more than $5 to reach two-week lows as markets reacted to growing optimism that the United States and Iran are moving closer to a peace agreement, despite continued disagreements over key issues, including restrictions on the Strait of Hormuz.

Brent crude futures declined by $5.09, or 4.9%, to $98.45 per barrel at 0705 GMT, while US West Texas Intermediate (WTI) futures slipped $5.22, or 5.4%, to $91.38, Caliber.Az reports, citing Reuters.

Both benchmarks hit their lowest levels since May 7 earlier in the session.

The decline followed comments from US President Donald Trump on May 23, who said Washington and Iran had “largely negotiated” an understanding on a peace deal that would reopen the Strait of Hormuz—a vital shipping route that previously carried around one-fifth of global oil and liquefied natural gas supplies before the conflict.

Despite the positive signals, analysts warned that significant obstacles remain. MST Marquee analyst Saul Kavonic said that while there is “some light at the end of the tunnel,” uncertainty over the deal and the strait could provide short-term relief for oil prices.

However, officials on both sides continue to signal unresolved disputes. Trump also cautioned on Sunday that he had instructed negotiators not to rush into any agreement, underscoring the fragility of the talks.

ING commodities strategist Warren Patterson noted that markets have seen similar phases before, with negotiations breaking down after initial optimism, suggesting investors may remain cautious about overreacting.

Analysts also expect that restoring normal oil and gas flows through the Strait of Hormuz could take months, particularly if infrastructure repairs are required. Phillip Nova analyst Priyanka Sachdeva said the longer disruptions persist, the more uncertain it becomes whether global leaders are committed to a swift resolution.

In the United States, energy companies have responded to higher domestic prices by increasing drilling activity, with oil and gas rig counts rising for the fifth consecutive week—the first such streak since February 2025. According to Baker Hughes, the total rig count increased by seven to 558 in the week ending May 22, marking the highest level since June 2025, though still slightly below last year’s level.

Sachdeva added that while markets are attempting to stabilise after recent declines, investor confidence remains weak and momentum is still fragile.

By Bakhtiyar Abbasov