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Global crude oil prices rebounded on Thursday, erasing a large portion of the previous session's sharp losses. Investors are reassessing the likelihood of a swift diplomatic breakthrough between the United States and Iran, while rapid declines in Western energy inventories have put a floor under the market.

Brent crude futures gained 78 cents, or 0.74 percent, to reach $105.80 a barrel. Meanwhile, US West Texas Intermediate (WTI) crude futures rose by 84 cents, or 0.85 percent, to trade at $99.10 a barrel.

Both benchmarks had plummeted more than 5 percent on Wednesday. That drop occurred after US President Donald Trump announced that peace negotiations with Tehran were entering their final stages. However, the subsequent warning from Washington of potential fresh military strikes if a deal falls through quickly revived the market's geopolitical risk premium.

Hormuz Standoff

Energy markets remain highly sensitive to diplomatic headlines coming out of Washington and Tehran. While political leaders hint at an approaching ceasefire, on-the-ground realities keep oil traders cautious.

The Strait of Hormuz, a critical maritime corridor that previously handled nearly 20 percent of global oil consumption, remains heavily restricted. Compounding market anxiety, Iran recently announced the creation of a new maritime authority to enforce a controlled shipping zone within the waterway.

Financial analysts note that the energy market has experienced several false dawns regarding a Middle East resolution over the last two months. Many market participants are refusing to price in a full recovery of oil supplies until commercial vessels can safely and freely navigate the Gulf region again.

Historic Drawdown in US Inventories

Adding strong fundamental support to the price rebound is the rapid tightening of global crude supplies. The latest data from the US Energy Information Administration revealed a historic drop in domestic stockpiles.

The United States withdrew nearly 10 million barrels of oil from its Strategic Petroleum Reserve last week, marking the single largest drawdown on record. Furthermore, commercial crude inventories fell by 7.9 million barrels, a figure that significantly surpassed the expectations of Wall Street analysts.

With peak summer driving demand approaching in the Northern Hemisphere, these shrinking inventories leave major economies with very little cushion against prolonged supply blockades.

Inflation Fears

Looking ahead, oil prices are expected to experience intense volatility. Investment banks are warning that if diplomatic efforts stall entirely, Brent crude could quickly surge toward the $120 per barrel mark.

Sustained energy prices at these elevated levels are already causing concern for net oil-importing nations, including India. High fuel costs continue to drive global inflation expectations up. This pressure makes it difficult for central banks to lower interest rates, even as broader economic growth begins to cool.

For the immediate future, the direction of the energy market hinges entirely on Tehran’s formal response to the latest US peace proposal and the speed at which maritime trade routes can normalize.