Oil Prices Surge 4% as Iran Talks Collapse, Hormuz Freezes

Oil prices surged more than 4% on May 15, posting their strongest weekly performance in months, as stalled U.S.-Iran nuclear negotiations and a near-total freeze on Strait of Hormuz shipping traffic drove a sharp spike in geopolitical risk premiums, overshadowing supply-and-demand fundamentals.

Prices

NYMEX West Texas Intermediate (WTI) crude futures for June delivery settled at $105.42 per barrel on May 15, up $4.25, or 4.2%, on the day. Brent crude futures for July delivery closed at $109.26 per barrel, gaining $3.54, or 3.4%.

WTI notched a weekly advance exceeding 7%, while Brent posted a gain of more than 10% over the same period — the largest weekly rallies for both benchmarks in recent memory.

Refined products followed crude higher. July RBOB gasoline futures rose 9.57 cents, or 2.77%, to $3.5564 per gallon. July heating oil futures advanced 14.69 cents, or 3.89%, to $3.9212 per gallon.

Geopolitical Risk Premium Surges As U.S.-Iran Talks Break Down

Market participants attributed the bulk of the rally to the breakdown of diplomatic talks between Washington and Tehran, which extinguished hopes for a swift resolution to the conflict and a rapid reopening of the vital Persian Gulf waterway.

On May 15, Iranian officials confirmed that the United States had formally rejected Tehran's 14-point written proposal aimed at ending hostilities, with Iran reiterating an uncompromising stance on its nuclear program.

Also on May 15, speaking to reporters aboard Air Force One, U.S. President Donald Trump said he had not personally favored a ceasefire, describing it as a concession made at the request of third-party nations. Trump dismissed the Iranian proposal as "unacceptable" and warned that any deal would be void should Iran pursue weapons of mass destruction. The mutual hardening of positions effectively rendered the existing ceasefire framework meaningless, analysts said, reigniting fears of renewed escalation.

Hormuz Shipping Traffic Near Standstill

The Strait of Hormuz, through which roughly a fifth of the world's oil supply transits daily, has been brought to a near-standstill. Data as of May 14 showed only 10 vessels transited the strait in a 24-hour period, compared with a pre-conflict daily average of approximately 140 ships. By May 18, commercial tanker flows had been described as effectively frozen, with vessel traffic in the prior weeks averaging just five to seven transits per day.

"The market has completely abandoned expectations for a rapid reopening of the strait," said an analyst at Commerzbank. "The situation points to a sustained disruption to physical supply flows."

Inventories Draining At Record Pace

Compounding supply concerns, global petroleum stockpiles are being drawn down at what the International Energy Agency (IEA) has described as a historically rapid pace.

According to IEA data, global observable oil inventories fell by 250 million barrels in March and April combined — equivalent to a daily drawdown of 4 million barrels. Gulf state producers have sustained cumulative supply losses exceeding 1 billion barrels since the onset of the conflict, with more than 14 million barrels per day of production capacity forced offline.

Analysts cautioned that strategic petroleum reserve releases and softening demand have provided only temporary relief, and that a prolonged closure of the Strait of Hormuz risks triggering acute shortages in refined products markets, sustaining upward price pressure for months.

U.S. Rig Count Rise Offers Little Near-Term Relief

U.S. energy firms added oil and gas rigs for a fourth consecutive week, bringing the total active rig count to 551 as of the week ending May 15, including 415 oil-directed rigs, according to Baker Hughes data. Yet analysts were cautious about the near-term impact of domestic production gains.

The current rig count remains 25 units, or approximately 4%, below the year-ago level, reflecting a sustained contraction in capital expenditure over the past twelve months. The typical production lag of three to six months between new drilling activity and incremental output means that any supply response is unlikely to reach markets before the end of the third quarter of 2026 at the earliest.

"The scale of the supply gap created by the Hormuz disruption — millions of barrels per day — simply cannot be offset by moderate U.S. production growth in the near term," one market analyst noted.

Outlook: Geopolitical Premium To Persist

Commodity analysts widely expect oil prices to remain elevated in the near term, with the potential for further upside should conditions deteriorate.

Three key variables will determine the medium- to longer-term trajectory: the possibility of renewed U.S.-Iran dialogue and whether a durable ceasefire can be implemented; the cumulative impact of accelerating inventory draws against the backdrop of peak summer demand; and the pace of U.S. shale output growth alongside any potential policy adjustments from OPEC+.

"Until there is a material improvement in at least one of these variables, international oil prices are likely to remain in a geopolitical risk-premium-driven range, with the possibility of further upside moves that cannot be ruled out," said a senior analyst at Beijing-based commodities consultancy Shengyi Society.