US Military Strikes Iran, Agreement "Needs a Few More Days": US-Iran Peace Talk Expectations Dashed Again, Will Oil Prices Rebound?

TradingKey - U.S. Secretary of State Marco Rubio stated on Tuesday that negotiations with Iran may take 'several more days' to finalize, once again dashing market expectations for an end to the U.S.-Iran conflict. Only a day earlier, he had confidently suggested that an agreement to end the war with Iran might be reached 'today'.

On Monday, the U.S. launched strikes in southern Iran, sinking two vessels that were laying mines. Iran has vowed to retaliate, while U.S. officials maintained that the U.S. continues to adhere to the ceasefire agreement.

At this critical juncture in U.S.-Iran negotiations, the escalation of hostilities has fueled growing skepticism regarding the prospects for peace talks: Can a U.S.-Iran ceasefire agreement be successfully reached? Will oil prices see renewed volatility?

Why the Ceasefire Draft Reversed: Nuclear Issue Remains the Key Point of Contention

Donald Trump said on Monday that negotiations with Iran are progressing "smoothly," but warned that strikes would resume if the talks collapse. However, just hours after reports emerged that a draft agreement between the U.S. and Iran had been largely finalized, the U.S. opened fire again, signaling that key differences between the two nations remain.

According to the Associated Press, two regional officials interviewed stated that the draft agreement includes an end to the war between Israel and Hezbollah, as well as a commitment to non-interference in the internal affairs of regional countries, including Iran. While Iran is not directly involved in the war with Israel, groups such as Lebanon's Hezbollah, Yemen's Houthi rebels, Gaza's Hamas, and Iraqi Shiite militias are all Iranian armed proxies. One regional official said the U.S. wants Israel to have the freedom to address perceived threats in Lebanon, a demand Iran rejected.

Another key point of contention is the nuclear issue. On Sunday, Iranian President Masoud Pezeshkian publicly stated that Iran is prepared to "assure the world that we are not seeking nuclear weapons." According to reports on Monday, Iran agreed in the draft agreement to relinquish its stockpiles of highly enriched uranium. However, Iranian Foreign Ministry spokesperson Esmaeil Baghaei stated that the current focus of negotiations with the U.S. is ending hostilities and that Iran is not discussing nuclear details at this stage. Iran is using nuclear negotiations as leverage to secure the lifting of U.S. sanctions, a position that diverges significantly from the U.S. insistence on preventing Iran from acquiring nuclear weapons.

Physical Oil Inventories Bottom Out; Europe and U.S. May Face Supply Bottlenecks in July

Oil prices fell in response to Donald Trump's claim over the weekend that the United States is close to reaching a peace deal with Iran; WTI crude recently dropped toward the $90 level, while Brent crude prices have already broken below $100.

However, Jeff Currie, former head of commodities research at Goldman Sachs and current energy advisor at Carlyle Group, issued a warning to the market on Monday. He believes the current decline in oil prices reflects an overly optimistic market sentiment, noting that even if the opening of the straits were announced tomorrow, it would take at least six months to truly resolve supply issues.

"Since the outbreak of the conflict, there have been five deal announcements and zero closures," Currie stated. This implies that negotiations for a U.S.-Iran agreement are essentially a game of "crying wolf," and market expectations for a successful outcome are unlikely to be met. Furthermore, as time progresses, Iran's odds of success may increase. He noted that Iran's current negotiating position is at its strongest in 47 years—as global oil inventories decline daily, Iran's bargaining leverage rises, while the West's bargaining power weakens accordingly.

He believes that currently available oil inventories are far lower than the market imagines. Although global nominal inventories reach approximately 8 billion barrels, the vast majority consists of pipeline and system fills that are practically inaccessible; truly available inventories are nearing "minimum operating levels," with Asia particularly short and already at this critical juncture.

Europe has not yet faced overt inventory pressure, only because it is still importing large volumes of crude exported from the U.S. Strategic Petroleum Reserve (SPR); however, after the bank holiday ends and the summer driving season begins, Europe will start to face issues, while the U.S. domestic market could encounter a genuine supply bottleneck in July.