Oil caught between peace hopes and supply shock

Oil prices eased on 6 April as investors weighed a proposed plan to end hostilities between the United States and Iran against ongoing risks to supply through the Strait of Hormuz. Brent crude fell to around 107 USD a barrel in volatile trade, while U.S. West Texas Intermediate (WTI) moved toward the low-100s. Both benchmarks remain well above levels seen before the conflict.

According to Reuters, Pakistan has presented a two-stage proposal to Washington and Tehran. It would begin with an immediate ceasefire and the reopening of the Strait of Hormuz, followed by 15 to 20 days of talks to finalise a broader agreement, tentatively called the “Islamabad Accord.” Separate reports from Axios suggest mediators are also discussing a possible 45-day ceasefire, highlighting the range of outcomes still under consideration.

A major supply disruption at a key chokepoint

The conflict has severely disrupted flows through the Strait of Hormuz, which typically carries about one-fifth of global crude and liquefied natural gas supply. The U.S. Energy Information Administration describes it as the world’s most important oil transit chokepoint, handling roughly 20% of global petroleum liquids consumption.

Restrictions on traffic have forced many tanker operators to suspend voyages, sharply reducing exports from Gulf producers. While some shipments continue, flows remain significantly constrained, keeping supply concerns at the centre of market pricing.

Recent price swings reflect this uncertainty. Reuters reports that U.S. crude has risen more than 11% in a single session at times, with Brent also recording sharp gains during periods of escalation. The International Energy Agency has warned that the conflict has created an exceptionally large oil supply shock, with very large volumes temporarily removed from the market.

Escalation risks keep markets on edge

U.S. President Donald Trump has warned that the United States could target Iran’s energy infrastructure if the strait is not reopened, while also signalling that a deal remains possible. According to Reuters, both sides are assessing the Pakistan-mediated proposal, though no official response has been confirmed.

This mix of diplomatic progress and escalation risk has kept oil markets highly reactive. Prices have swung sharply in response to headlines on negotiations, proposals, and geopolitical tensions, underscoring how sentiment is shifting alongside developments on the ground.

Price scenarios remain wide

Analysts cited by Reuters suggest oil prices could stay elevated across most conflict scenarios. Options market pricing indicates that Brent could move toward 150 USD a barrel if disruptions persist, particularly if infrastructure damage increases.

At the same time, a sustained ceasefire and reopening of Hormuz could ease prices as supply returns and the geopolitical risk premium fades. Some institutions note that this could reverse part of the recent rally, depending on how quickly flows normalise.

The wide range of potential outcomes reflects the level of uncertainty. With a significant share of global supply affected, markets are balancing between prolonged disruption and a negotiated return to more stable conditions.

What traders are watching next

Market structure continues to signal tight conditions. Futures curves remain in steep backwardation, with near-term contracts trading above longer-dated ones, indicating strong demand for immediate supply. Volatility has also surged, with sharp daily swings driven by rapid shifts in expectations.

Traders are now focused on whether diplomatic efforts translate into a ceasefire and a reopening of Hormuz, or whether negotiations stall. Attention is also turning to U.S. inflation data. Bloomberg reports that economists expect the March consumer price index to rise around 1% month-on-month, which could offer an early indication of how higher energy prices are feeding into broader inflation.

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