Oil Prices Slip as Israel-Lebanon Ceasefire Raises Hope for Wider Middle East Peace Deal

Oil prices edged lower on Thursday after a ceasefire agreement between Israel and Lebanon lifted expectations that broader diplomatic progress could help end the ongoing US-Israeli conflict with Iran, potentially paving the way for the reopening of the Strait of Hormuz, a critical global shipping route.

Brent crude futures fell by 87 cents, or 0.89 percent, to $96.92 a barrel by 07:58 a.m. Saudi time. US West Texas Intermediate (WTI) also declined, slipping 78 cents, or 0.81 percent, to $95.24. The pullback came after both benchmarks had risen roughly 2 percent in the previous session, driven by renewed tensions in the region, including Iranian strikes on Kuwait and US military operations near the Strait of Hormuz.

The latest price movement reflects shifting market sentiment as geopolitical developments continue to dominate energy trading. Late on Wednesday, Israel and Lebanon confirmed a ceasefire agreement, a move that has raised hopes for broader negotiations involving Washington and Tehran. Any wider deal is seen as potentially easing pressure on global oil flows, particularly through the Strait of Hormuz, through which a significant share of the world’s crude supply is transported.

US President Donald Trump indicated that diplomatic progress with Iran could emerge as early as this weekend, though Iranian Foreign Minister Abbas Araqchi said discussions remain ongoing without concrete breakthroughs. He added that both sides are still reviewing previously exchanged proposals, with no resolution yet in sight.

In Washington, political tensions over the conflict have also intensified. The Republican-controlled House of Representatives passed a resolution aimed at blocking continued US military involvement in Iran. However, the measure faces significant hurdles in the Senate and would require a two-thirds majority in both chambers to override an expected presidential veto.

At the same time, supply-side data has added further complexity to oil market dynamics. The US Energy Information Administration reported a sharp drop in crude inventories, with stockpiles falling by 8 million barrels to 433.7 million barrels in the week ending May 29. The decline far exceeded analyst expectations of a 4-million-barrel draw, suggesting tighter near-term supply conditions.

The International Energy Agency has warned that global oil inventories could reach critically low levels ahead of peak summer demand if current drawdown trends continue. Despite a slowdown in Chinese crude imports, analysts say supply buffers remain under pressure.

ING analysts noted that while inventories have so far cushioned the market, any recovery in supply following a potential reopening of the Strait of Hormuz is likely to be gradual rather than immediate. They added that tightening stock levels could sustain upward pressure on prices into the third quarter, even amid diplomatic progress.

For now, oil markets remain highly sensitive to both geopolitical signals and inventory trends, with traders weighing the possibility of de-escalation against persistent structural supply risks.