U.S.-Iran agreement "expected" to crush oil prices; this investment bank warns that the market is "seriously out of touch with reality": severe pressure expected from June to August

Brent crude oil posted its largest monthly drop in six years this May, as the market bets that US-Iran negotiations will drive the reopening of the Strait of Hormuz and push oil prices further down. However, Helima Croft, Head of Commodity Research at RBC, issued a warning in her latest report: current oil price trends are seriously diverging from supply realities, with global inventories being depleted at a record pace. If no substantial breakthrough is made, June to August this year will present a severe stress test for the crude oil market.

According to Xinhua News Agency, Trump posted on social media on Friday, the 29th, local time, that he would soon hold a meeting at the White House Situation Room to make a final decision on the Iran conflict. The news further dampened market sentiment. WTI crude fell 1.73% on the day, closing at $87.36 per barrel; Brent crude fell 1.77%, closing at $92.05 per barrel. In May, Brent crude dropped more than 19% cumulatively, marking its most severe monthly performance since March 2020 when COVID-19 hit the global economy; WTI fell nearly 17% in May, recording its worst monthly performance since April 2025.

Yet, Trump simultaneously put forward a series of conditions that Tehran has always rejected: Iran must promise never to possess nuclear weapons, immediately and unconditionally open the Strait of Hormuz in both directions without collecting passage fees, clear all remaining mines in the strait, and allow the US to excavate and destroy enriched uranium buried in ruins after airstrikes. According to CNBC, citing US officials, negotiators have reached a framework for a 60-day memorandum of understanding (MOU) covering an extended ceasefire and arrangements for Iran’s nuclear negotiations, but Trump’s final signature is still needed.

Croft wrote in the report that she does not rule out some form of MOU ultimately taking shape, but "in terms of substantial agreements, the current headlines and their impact on oil prices have clearly outpaced reality." She reminds investors that similar "deal imminent" headlines have appeared many times before—over three weeks have passed since the first related report, during which Iran has lost nearly 300 million barrels in capacity. In her view, the market has repeatedly been persuaded by "the situation is about to end" news and abandoned pricing for worst-case scenarios, while selectively forgetting the ongoing diplomatic deadlock and repeatedly escalating military conflicts, which is the real reason for the crisis being continually concealed until now.

Market Falls into “Memento” Trading, Narrative of the Agreement Overpowers Reality

Croft described current market trading logic with a “Memento-style” mentality in the report—whenever news of “agreement imminent” appears, the market takes it as a decisive breakthrough, while selectively forgetting the ongoing diplomatic stalemate, fundamental disputes over nuclear issues, and repeated military friction between the two sides.

This pattern has played out again this week. Just hours after the latest round of oil price declines driven by an Axios report, new news emerged that Iran once again fired missiles at several ships passing through without IRGC coordination. On Thursday, US forces intercepted four Iranian drones in the Strait of Hormuz and struck Iranian military positions near Bandar Abbas; the IRGC immediately retaliated with ballistic missiles against US bases in Kuwait, which were successfully intercepted by Kuwaiti forces. On Monday, US forces also struck two ships laying mines in the strait and an air defense position in Bandar Abbas.

Croft believes that February 27, 2026, may prove to be the peak of oil tanker traffic through the Strait of Hormuz for the foreseeable future. Any ceasefire outcome that retains actual control of the Strait of Hormuz for Iran will likely result in throughput significantly below historical normal levels.

Inventory Depletion Accelerates, October May Reach Historic Danger Lows

While the narrative of the agreement dominates price trends, RBC’s data reveals an accelerating deterioration in the underlying market fundamentals.

The crisis has entered its third month, and the sustained depletion of global inventories due to disruptions in Middle Eastern supply is increasingly prominent. Croft estimates that if the current six-week average depletion rate continues, the number of days inventories can cover refining demand, as measured by onshore crude oil stockpiles compared to refinery throughput, could decline to the 30-40 day range before October—the lowest level since RBC began compiling data in 2016. Once this threshold is breached, logistical bottlenecks and shortages of raw materials may threaten normal industry operations.

Notably, the initial shock was relatively manageable due to ample starting inventories and the release of strategic petroleum reserves (SPR) coordinated among countries, which buffered the immediate impact of the largest supply disruption in history. But Croft points out that these "energy shock absorbers" are being depleted rapidly. RBC projects that in the coming weeks, the pace of inventory depletion will further accelerate, and the crisis point could arrive earlier than expected. Additionally, due to limited visibility in other countries' market data, current inventory declines may be systematically underestimated, and the real situation could be tighter than known data suggests.

Based on the above, Croft concludes that, absent any substantive breakthrough, RBC is confident that June to August will present a severe stress test for the crude oil market—"and so far, this market has managed to avoid pricing in the worst-case scenario by persuading itself." She writes:

"Time is slipping away, and the window to reopen the Strait of Hormuz and avoid a hard landing is rapidly narrowing."

Difficult Agreement Implementation: Logistics, Insurance, and Sanctions as Triple Obstacles

Even if the US and Iran ultimately sign an MOU to extend the ceasefire, RBC believes that a substantial and rapid reopening of the Strait of Hormuz is unlikely.

From a practical standpoint, even if more vessels are allowed to pass, initial traffic will likely be one-way, increasing the logistical complexity of clearing the route. Given the persistent threat from missiles, drones, and mines, Croft finds it hard to see many Western shipping companies willing to risk returning to the strait based on a mere 60-day MOU. Sky-high insurance rates, coupled with legal barriers to paying IRGC-related entities or coordinating passage under US sanctions, further shrink the real options for shipowners. Shipping experts have pointed out that an Iran-led reopening plan would likely mean limited throughput, and full restoration of the strait would require Iranian military forces to be definitively defeated and unrestricted passage to be assured.

Meanwhile, the accelerated development of alternative land routes in the UAE, as well as Saudi Arabia’s continued heavy use of the East-West Pipeline, have become realistic choices for the Gulf region in adapting to the new paradigm.

Croft also raises an intriguing strategic question: Are there forces within Iran inclined to maintain the current "neither war nor peace, micro oil flow" status? These groups may judge that, as summer approaches and the economic cost of inventory depletion becomes harder to hide through propaganda, Iran's bargaining leverage will naturally increase. Although the double blockade has clearly diminished the Iranian government's finances and the efficiency of oil and gas operations, reports say Iran is still selling previously sanctioned oil through exemption clauses and collecting income from passage fees in the Strait of Hormuz.

More noteworthy is that, despite the degree of malignant inflation being far worse than in January this year, reports say the Iranian government has not faced a new round of large-scale protests so far, and it is said that the IRGC has used the ceasefire period to rebuild some military capability—this may indicate the hardliners in Tehran believe time is on their side.

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