Oil Markets Whipsawed by Conflicting U.S.-Iran Signals

Oil markets closed the week staring at a 7% loss, with ICE Brent headed for $101 per barrel, as traders tried and failed to reconcile missile strikes, tanker seizures, and a cascade of physical disruptions against vague hopes of a U.S.-Iran deal.

The confusion is understandable. Iran’s navy seized its own tanker, the Ocean Koi, which had been delivering fuel oil to Fujairah in the UAE, claiming the ship was undermining exports by “exploiting regional conditions.” Hours later a Chinese-owned oil product tanker was attacked off the UAE coast — the first time a vessel signaling “China owner & crew” had been hit in the conflict.

Yet prices still fell. The CFTC’s decision to investigate Trump’s war-related Truth Social posts appears to have cooled speculative fervor and prevented yet another Friday plunge. At the same time, Beijing quietly ordered its largest banks to halt new loans to five Chinese refineries Washington just sanctioned for buying Iranian crude — a sharp reversal from earlier instructions to ignore such sanctions.

Europe’s vulnerability is even clearer. Its largest natural gas supplier, Equinor, warned the continent will miss its target of filling storage to 80% before next winter; inventories now sit at just 34%. Jet fuel premiums in Europe have eased to a $99 per metric tonne premium over ICE gasoil futures, but that modest relief follows widespread flight cuts by airlines. Libya’s 120,000 b/d Zawiya refinery is offline after shelling, and Indonesia has frozen 2026 crude export approvals to keep 60,000 barrels per day at home.

Saudi Aramco disappointed Asian buyers with only a $4 per barrel cut in its June official selling price, setting the premium to Oman/Dubai at $15.50 instead of the expected $10–15 drop. BP’s incoming CEO Meg O’Neill is already preparing to split the company into upstream and downstream units starting in June. A U.S. court ruled Trump’s 10% import tariffs unlawful, though it stopped short of a universal injunction.

The disconnect is glaring: physical supply is tightening from the Gulf to the South China Sea, yet paper markets are betting on diplomacy that has so far produced nothing but conflicting signals. The real test will come when winter draws nearer and Europe’s empty storage tanks force buyers back into an even more unstable market.

Original reporting: OilPrice.com.