Market participants appear to be pricing in a deal which is yet to be signed as physical market supply shortages persist. How long can this narrative continue?
Oil futures (Cl1!) continued their struggle on Friday as market participants expected the US and Iran to soon settle a conflict that has disrupted global energy supplies since late February.
Added to that was a blockbuster Nonfarm Payrolls (NFP) print, which showed the US economy adding 172,000 jobs in May. The data also means the Federal Reserve is much less likely to cut interest rates anytime soon, keeping the US dollar strong and capping oil's immediate upside potential as the market heads into the weekend.
The ensuing back and forth between the parties has left Oil prices at the mercy of comments from both sides with price action swaying on a dime. Oil futures fell as much as 3% yesterday wiping out the gains made on Tuesday and Wednesday respectively.
At the time of writing, Oil futures are still up around 5.7% for the week.
Another Weekend of Risk After Trump Deal Promise
The drop in Oil futures yesterday was triggered by dual diplomatic developments that began Wednesday evening and gained momentum through Thursday.
First, Israel and Lebanon agreed to a ceasefire, which traders view as a vital stepping stone toward a broader U.S.-Iran deal. This is because Iran has long insisted that halting Israeli operations in Lebanon was a non-negotiable prerequisite for any agreement with Washington.
Further boosting market confidence, President Trump informed aides on Thursday that the ceasefire with Iran is holding despite minor clashes.
Adding to this downward pressure on prices, the US House of Representatives passed a resolution demanding Trump either withdraw US forces or seek congressional approval to continue the conflict, signaling strong domestic political resistance to a prolonged war.
This may be a key development for markets as pressure from the US House of Representatives could lead to a faster resolution.
President Trump in comments separately said progress in negotiations could be achieved "as early as this weekend."
Now markets have heard this rhetoric before, so the question is “what makes this time different?”
Amos Hochstein, former senior energy adviser to President Biden, offered a blunt assessment of the diplomatic dynamic: "Wall Street wants to believe what President Trump is saying is right, that we are on the precipice of a deal any second, which is why oil prices have dropped." In other words, the market may already be pricing a resolution that has yet to be signed.
Physical Market Realities Grow
Underneath the optimistic diplomatic news, actual oil supplies are still incredibly tight. This was highlighted by the latest data for the week ending May 29, which showed that US crude stockpiles plunged by 8 million barrels, dropping total inventories down to 433.7 million barrels.
US EIA Crude Oil Stocks Change
Source: EIA, FXstreet
This supply drop was double the 4-million-barrel decrease that market analysts had originally expected.
This should be a warning for oil prices, as analysts have consistently noted that a deal will not miraculously fix the physical market tightness overnight. This supply shortage is completely unprecedented. According to the International Energy Agency (IEA), the oil market has lost roughly 10 million barrels per day of exports from the Persian Gulf, making it the largest supply disruption in history.
Add the damage to infrastructure, refineries etc and the rebuilding job will not be quick and easy.
Goldman, JP Morgan on Price Trajectory
Major Wall Street banks are staying cautious about how quickly the oil market will return to normal.
Goldman Sachs forecasts Brent at $90 a barrel and WTI at $83 by Q4 2026, warning that risks go both ways: ongoing Middle East supply disruptions could spike prices, while dropping demand could tank them.
In fact, JP Morgan highlights that high prices are already seriously hurting global consumption, with demand losses accelerating from 2.8 million barrels per day in March to an estimated 5.6 million in May.
This growing demand destruction could cause prices to plunge rapidly if a peace deal is finalized soon.
Oil Futures (CL1!) Four-Hour Chart, June 5, 2026
Source: TradingView
Looking at the H4 chart, crude futures maintain a bearish structure.
Price recently failed to sustain a breakout above the 100-dayMA ($95.50) and 200-day MA ($97.05), facing strong rejection near the $96.50 zone before turning sharply lower to its current level around $92.11.
The intermediate trend remains downward-sloping, characterized by lower highs and lower lows. Additionally, the RSI indicator sits at a neutral-to-bearish 43.06, leaving plenty of room for further downside momentum.
Outlook: Sellers are in control. Expect a potential test of immediate support near the $90.00 psychological level, with a break opening the path back toward the major swing lows near $87.00. Immediate resistance holds at $95.50.
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