Oil steadies near $97 as Lebanon-Israel ceasefire offsets Iran strike fears and US House votes to curb Trump war powers

Oil markets paused a three-day rally on Thursday, caught between a new ceasefire agreement between Lebanon and Israel and the persistent threat of renewed US-Iran combat. Brent futures slipped 0.7% to $97.14 a barrel, while West Texas Intermediate fell 0.65% to $95.40, after both benchmarks had risen roughly 2% on Wednesday.

Hostilities flare and recede

The midweek surge was driven by an overnight exchange of strikes. Iranian drones hit Kuwait's main international airport, and the US military responded with strikes on Iran's Qeshm Island, near the Strait of Hormuz. The strait, a chokepoint for roughly 20% of global oil exports, has been effectively closed since late February, with Iran having mined large portions of the waterway.

There has been a slight tick up in vessels attempting the journey, but total transits remain significantly below pre-conflict levels.

Diplomatic signals diverge

On Wednesday, President Trump told the New York Post's "Pod Force One" that he considered it unlikely the Strait of Hormuz blockade would persist until September, expressing optimism about a deal with Tehran. Iranian Foreign Minister Abbas Araqchi confirmed contacts with Washington had not been cut off, but said no progress had been made and both sides were studying exchanged texts. Iranian media reported that Tehran is reviewing a proposed agreement to halt the conflict.

I don't rule out the blockade of Hormuz lasting until September, but I think it's unlikely.

Legislative pushback in Washington

The Republican-led US House of Representatives approved a war powers resolution on Wednesday to block Trump from continuing the conflict against Iran. The measure is largely symbolic: it must pass the Senate and would require a two-thirds majority in both chambers to override an almost certain presidential veto.

Economic ripples widen

The OECD warned that the war has hit global economic growth prospects, with a more severe shock likely if no effective ceasefire is agreed before 2027. Antonio di Giacomo, senior market analyst at XS.com, noted that rising oil prices raise concerns about the impact of higher energy costs on global inflation in the coming months. US gasoline prices, while dipping to a national average of $4.26 per gallon on Wednesday, have risen 43% since the war began, according to AAA.

The rise in oil prices not only reflects the risks associated with the conflict in the Middle East, but also raises concerns about the potential impact of higher energy costs on global inflation in the coming months.

Stock markets retreat

Asian stocks fell at the open on Thursday, with MSCI's broadest index of Asia-Pacific shares outside Japan down 0.8%. Japan's Nikkei 225 slumped 1.3% and Korean shares reopened down 2% after a holiday. European shares had fallen on Wednesday, with the pan-European Stoxx 600 dipping 0.7%. Dublin's Iseq All-Share edged down 0.4%, with travel stocks losing ground: Ryanair fell 2.8% and Irish Continental Group dropped almost 7%. In London, the FTSE 100 matched Dublin's 0.4% decline. On Wall Street, the S&P 500 fell 0.7% overnight, and Broadcom shares plunged more than 13% in extended trading after missing second-quarter revenue expectations.

Supply tightness persists

US crude stockpiles fell by 8 million barrels to 433.7 million barrels in the week ended May 29, according to the Energy Information Administration, far exceeding analysts' expectations for a 4-million-barrel draw. The International Energy Agency warned that global oil inventories could hit critical levels ahead of peak summer demand if stock draws continue at their current pace. Haitong Futures noted that oil prices are likely to move toward the upper end of their range due to a persistent supply-demand imbalance as global crude inventories fall rapidly.