Oil dropped on a Trump comment, even though the biggest banks on Wall Street still see crude heading to $120 or higher. Neither side of that trade is wrong.
Trump said Wednesday that the Iran war will end "very quickly," sending Brent crude futures down 2.5% to $108.52 a barrel by 9 a.m. ET, while WTI fell 2.3% to $101.81 in the biggest one-day drop for both contracts in two weeks.
The day before, VP JD Vance said the US and Iran had made progress in their talks, but Trump also said the US may still need to strike Iran again, adding he was an hour from ordering one before pulling back.
So far, nothing has been signed - no ceasefire and no formal deal - just two White House headlines pushing oil lower.
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Citi told clients Tuesday that Brent could hit $120 a barrel in the near term, with the bank saying traders are underpricing how long it will take for Middle East supply to come back.
Wood Mackenzie went further, warning that Brent could near $200 if the Strait of Hormuz stays mostly shut through year-end.
The Strait is the choke point for global oil, with about 130 ships passing through every day before the war, but on Wednesday only three supertankers made the crossing, carrying 6 million barrels that had been stuck in the Gulf for more than two months.
The catch: LSEG analyst Emril Jamil said prices still have upside even if a deal is reached, because supply won't return to pre-war levels right away.
PVM analysts struck a similar note, warning that global oil stocks could reach "critically low" levels even as traders look "comparatively nonchalant" about what the conflict might bring next.
Saudi crude exports and production both hit record lows in March, while the UK loosened sanctions to allow imports of diesel and jet fuel refined abroad from Russian oil to help fill the gap.
US crude stockpiles are expected to have fallen by about 3.4 million barrels last week, according to a Reuters poll, with the Energy Information Administration releasing its weekly inventory data Wednesday afternoon for traders to gauge how fast US supply is being drawn down.
Front-month Brent still trades at about a $20 premium over six-month contracts, a sign of how tight today's supply is. That's well below the $35-plus spread from last month, meaning traders expect the squeeze to ease from here.
The oil market is pricing in a deal that doesn't exist yet, while the big banks are pricing in the war that does.
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