Oil Prices Drop Over 1.5% on Ceasefire Hopes, Bakken Differential at -$3.42

Oil prices fell sharply in midday trading Friday, with Brent crude dropping 1.65% to $91.17 and West Texas Intermediate (WTI) down 1.48% to $87.58, according to live price data. The Bakken crude differential to WTI was $-3.42. The weekly decline is on track to be the largest in two months for Brent, according to OilPrice.com.

The sell-off is driven by market speculation that a 60-day extension of the current U.S.-Iran ceasefire and a temporary deal to reopen the Strait of Hormuz are close to being finalized, OilPrice.com reported. The strategic waterway has been blocked for months, cutting off a major global oil chokepoint.

However, this optimism contrasts with stark warnings from industry leaders about dangerously low global inventories. Chevron CEO Mike Wirth warned Thursday that oil prices are likely to rise over the next two months as near-record low crude inventories continue to decline due to the Iran war. He stated that the market's ability to absorb supply imbalances is "drastically diminished," according to OilPrice.com.

This tension between geopolitical headlines and physical market fundamentals is creating volatility. Despite the Strait of Hormuz remaining largely blocked, causing a major supply disruption, prices have paradoxically fallen in May. OilPrice.com cited analysis that global oil inventories plunged by a record 8.7 million barrels per day in May.

For Bakken operators, the current price of roughly $84.16 per barrel (WTI minus the differential) provides cash flow, but the volatile backdrop and inventory warnings signal potential swings ahead. A sustained reopening of the Hormuz Strait could pressure prices, while any breakdown in talks or further inventory draws could trigger a sharp rally.

In related supply news, the Philippines received its first cargo of Iranian crude since the blockade began, via a ship-to-ship transfer, OilPrice.com reported. Meanwhile, production at Kazakhstan's giant Tengiz field, operated by Chevron, fell sharply from 950,000 b/d to around 60,000 b/d after an accident on May 26.

Natural gas prices showed modest strength, rising $0.05 to $3.34. The overall price movement today reflects a market weighing immediate deal prospects against a deteriorating inventory buffer, setting the stage for continued uncertainty for producers.