Oil prices fell sharply on Wednesday after reports that the U.S. and Iran are close to a deal that could end the war and reopen oil flows through the Strait of Hormuz.
Brent crude dropped 6.2% to $103.04 per barrel. West Texas Intermediate fell 6.6% to $95.55. Both contracts had already fallen nearly 4% the day before.
The sell-off followed an Axios report saying the White House is nearing a one-page memorandum of understanding with Iran. The deal would set the stage for wider nuclear talks.
U.S. officials said they expect responses from Tehran on key issues within 48 hours. No final agreement has been signed, but officials described this as the closest both sides have come to a deal since fighting began.
The proposed framework includes Iran agreeing to pause nuclear enrichment. In return, the U.S. would lift sanctions and release billions of dollars in frozen Iranian funds.
Both sides would also ease restrictions on shipping through the Strait of Hormuz. The strait is a critical passage for global oil exports.
Oil prices have risen around 50% since the conflict started in late February. The war cut off hundreds of millions of barrels of Persian Gulf oil from world markets.
More than 1,550 commercial vessels carrying around 22,000 sailors are currently trapped in the Persian Gulf, according to General Dan Caine, chairman of the Joint Chiefs of Staff.
President Trump said the U.S. would pause “Project Freedom,” its operation to escort commercial ships through the strait, while deal talks continue.
“We have mutually agreed that, while the Blockade will remain in full force and effect, Project Freedom (The Movement of Ships through the Strait of Hormuz) will be paused for a short period of time to see whether or not the Agreement can be finalized and signed…” – President… pic.twitter.com/R9SlC4w68g
— The White House (@WhiteHouse) May 5, 2026
“We have mutually agreed that, while the Blockade will remain in full force and effect, Project Freedom will be paused for a short period of time,” Trump wrote on social media.
Secretary of State Marco Rubio told reporters that “Operation Epic Fury is concluded,” 66 days after the U.S. and Israel began military action against Iran.
Even with a potential deal, analysts say oil supply will not bounce back quickly. “This is not a switch you can just flip,” said Dilin Wu, research strategist at Pepperstone Group. Stranded tankers need rerouting, insurance markets need to reprice, and production needs time to ramp up.
ING analysts warned that roughly 13 million barrels per day of disrupted supply is being offset by falling inventories. “Tighter stocks will only leave the oil market trading in an ever more volatile manner,” they said.
Despite the price drop, U.S. supply data offered some support to the market. The American Petroleum Institute reported crude inventories fell 8.1 million barrels last week. Gasoline stocks dropped 6.1 million barrels and distillate stocks fell 4.6 million barrels.
Official inventory data from the Energy Information Administration was due later Wednesday.
Saudi Arabia cut the price of its main oil grade for Asian buyers in June, though prices remain elevated due to ongoing Middle East supply disruptions.
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