Oil Market Outlook: Oil Prices Breach $96 as Stalled Diplomacy

Written by Samer Hasn, Senior Market Analyst at XS.com

Oil prices rose by around 2% to breach 96 $ /bbl today, with ICE Brent futures holding above 101 $ / bbl.

 Market sentiment remains strained following President Donald Trump’s decision to cancel a high-level envoy mission to Pakistan, signaling a breakdown in near-term peace efforts.  This lack of progress, combined with Trump’s recent directives to engage Iranian vessels laying mines, has sustained elevated war premiums.

On the other hand, according to Axios, Iran has submitted a new proposal to bypass the current diplomatic stalemate by offering to reopen the Strait of Hormuz and end the war while postponing nuclear negotiations. The plan, delivered via Pakistani mediators, seeks to lift the U.S. blockade first, as Tehran remains divided over nuclear concessions. President Trump, however, signaled a preference for maintaining the blockade. Trump added he saw "no point" in sending envoys for long-distance meetings, stating, "The Iranians can call us if they want."

In any case, as we discussed earlier, negotiations, diplomatic moves, and even temporary truce agreements may be meaningless for the oil market unless a comprehensive agreement is reached that aims at a complete cessation of hostilities among all parties. This does not appear likely in the near future, given the maximalist demands of both sides and the United States' inability to achieve any of its strategic objectives in this war. This makes reaching an agreement a defeat for the United States if Iran maintains its firepower.

Meanwhile, the internal political race in Israel cannot be ignored. Former Israeli Prime Ministers Naftali Bennett and Yair Lapid have merged their parties into a new faction called "Together" to challenge Benjamin Netanyahu in the upcoming election, according to Reuters. While the latest polls from N12 News show Netanyahu’s Likud leading with 25 seats, his broader coalition is projected to fall short of a majority, commanding only 50 seats against a potential 60-seat bloc led by the newly unified opposition.

This may incentivize Netanyahu to maintain a trajectory of decisive military action against Iran, leveraging the conflict for electoral advantage and potentially obstructing the path toward a diplomatic resolution.

These conflicting narratives about the course of the war could keep the geopolitical risk premium priced into oil prices for an extended period. This premium will only dissipate with the emergence of a firm agreement to end the war, which is currently unlikely.

Even if an agreement is reached, damage has already been inflicted on Middle Eastern oil facilities, which, according to multiple reports, could require months of repairs, thus slowing the price decline.

These conflicting narratives about the course of the war could keep the geopolitical risk premium priced into oil prices for an extended period. This premium will only dissipate with the emergence of a firm agreement to end the war, which is currently unlikely.

Even if an agreement is reached, damage has already been inflicted on Middle Eastern oil facilities, which, according to multiple reports, could require months of repairs, thus slowing the price decline. Furthermore, the potential drop in oil prices should the war end may not be proportional across different crude benchmarks, given the geopolitical environment and the state of the infrastructure surrounding the market.

International crude benchmarks may exhibit greater price resilience than West Texas Intermediate, yet the United States faces significant hurdles in converting emergency wartime demand into sustained market dominance. Energy experts told the Wall Street Journal that Asian refiners face prohibitive costs to reconfigure their infrastructure to process U.S. light sweet crude. Simultaneously, European leaders are increasingly wary of their energy dependency as diplomatic relations with the Trump administration deteriorate. Henning Gloystein, managing director for energy at Eurasia Group, noted that allies fear the U.S. may exploit this reliance on energy imports as political leverage to extract concessions on NATO, climate policy, and trade tariffs. While record U.S. exports have mitigated the supply chasm caused by the paralysis of the Strait of Hormuz, they have yet to fully eliminate the global deficit, leaving importing nations with few immediate alternatives.

On the monetary front, several key central bank interest rate decisions are scheduled this week, most notably by the Federal Reserve. Should the Federal Open Market Committee emphasize persistent upside inflation risks and maintain its cautious stance regarding rate cuts in 2026, oil prices could face renewed downward pressure. Such a hawkish trajectory would likely bolster the U.S. dollar and reignite concerns over a potential economic slowdown, as prolonged elevated borrowing costs continue to weigh on global demand.

USOIL Technical Outlook

On the 4-hour timeframe, USOIL consolidates below the lower bound of the Equilibrium zone at 97.33 and 97.33. Meanwhile, the crude is in recovery following a significant bearish Change of Character (CHoCH) that pushed the asset into the Discount Zone anchored between 78.97 and 80.92.

On the upside, if USOIL breaks above the Equilibrium zone resistance and continues its current trend, this may draw buyers’ attention to t104.52 and the bearish fair value gap at 113.35 and 109.19. On the downside, if the price rejects this level and moves lower, this may draw sellers’ attention to the 0.5 level at 92.30 and the key bullish order block at 86.73 and 85.50.

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Disclaimer: The chart reflects the analyst's opinion and does not constitute investment advice. Past performance is no guarantee of future returns. Seek independent advice before making decisions.