Oil plunged below US$100 per barrel after the US and Iran agreed to a two-week ceasefire, expected to halt military strikes in exchange for Tehran reopening the Strait of Hormuz. Refiners should use this window to resume more opportunistic buying. However, the transition period itself could present the next challenge.
If refiners delay purchases in anticipation of further price declines while physical flows remain constrained, product tightness could worsen even amid de-escalation.

The ceasefire has shifted market rationale, allowing futures to reset quickly as the probability of sustained disruption declines. Yet this adjustment in futures does not translate into an immediate return to pre-conflict conditions, which is reflected in the relative strength of the physical market. What is being observed, both in reporting and in physical premiums, is not a full reopening of the Strait of Hormuz but rather a formalization of existing conditions, where passage remains contingent on coordination with Iran’s armed forces and subject to technical constraints

It’s also been rumored that both Iran and Oman are permitted to charge fees under the two-week ceasefire. This is the toll booth that traders had already begun to factor in: selective access, fee-based transit, Iran retaining control over who moves and who does not – but now with a diplomatic wrapper around it. Tanker owners, insurers and crews need evidence that risk has actually reduced, not just paused. Even within this two-week window, the expectation is that activity will restart in a measured manner rather than all at once.

This exacerbates one of the most important near-term market features: the dislocation between futures and physicals.In this ceasefire environment, paper markets reprice the relief almost instantly, while physical indicators and differentials still reflect caution.The Brent flat price has fallen, but prompt physical differentials are likely to remain sticky, tanker rates stay elevated, and sour crude buyers continue to pay up for security of limited global supply away from the Gulf. This goes to show that the perceived geopolitical risk can ease faster than operational risk.

Looking ahead

The market stills needs to watch for signs of a repricing of the longer-duration scenarios.
As the ceasefire proposal details are digested and understood, the main triggers would be only Iranian-friendly ships allowed to transit, weaker exporter loading reliability, or evidence that insurers and shipowners still view Gulf transit as unsafe.
Sentiment of shipowners is critical in the current situation, whereby the risks of damage to vessels from underwater mines will be at the forefront of operators’ minds.

In an escalation scenario, futures would react first and most violently because they are pricing probability, optionality and fear.
The front of the curve typically absorbs the largest premium as traders price the risk of immediate supply loss, tanker disruption, delays through the Strait of Hormuz and broader regional military spillover. That is why the four-month and six-month war scenarios had gained and remained strong relative to the pre-war line and the ceasefire case.
Those paths reflect more than lost barrels; they signify the market pricing duration, uncertainty and the growing chance that disruption spreads beyond a short-lived and localized event.

Backwardation across all benchmarks has dropped considerably – in some cases up to 40% on middle distillates – as the war premium effects that had lifted the prompt future months has reduced a lot.
Rystad Energy expects this to continue in the ceasefire case over the next few months as barrel availability continues to gain and regional shorts have more cover.

Asia buyers between a rock and a hard place

That gap is most visible in the East-West spread. The prompt Brent-Dubai exchange of futures for swaps (EFS) is sitting around $9 for June, significantly above pre-war levels despite Brent’s decline. That spread shuts the Atlantic Basin-to-Asia arbitrage. The consequences are already visible in the West African market and Atlantic Basin grades at large, with barrels not flowing and programs not sold. The economics currently do not look good in Asia.

The US-Iran ceasefire does little to alleviate this. Even as access through the Strait normalizes progressively, new loadings face voyage times of three to six weeks before reaching Asian discharge ports. The regional sour crude pipeline that Asian refiners are configured to run remains effectively broken. Atlantic Basin barrels are uneconomic. Barrels from the Gulf are not arriving.

Asia is caught between a market it cannot afford to buy from and a supply line that will take weeks to restart – and a two-week ceasefire window does not change either of those conditions.

Authors:

Janiv Shah
Vice President, Commodity Markets - Oil
janiv.shah@rystadenergy.com