Oil prices pull back on report U.S.-Iran agreement to extend ceasefire awaits Trump approval

Oil prices pulled back Thursday, erasing earlier gains on a report that U.S. and Iranian negotiators reached an agreement to extend ceasefire.

Axios reported that negotiators reached a 60-day memorandum of understanding to extend the ceasefire and start negotiations over Iran’s nuclear program. President Donald Trump still has to approve the deal, according to Axios.

Brent crude futures, the international benchmark, climbed 35 cents to $94.64 per barrel by 10:23 a.m. ET. West Texas Intermediate futures gained 58 cents to $89.26 per barrel.

Prices rallied earlier Thursday after Iran’s Revolutionary Guard said it targeted a U.S. air base at around 4:50 a.m. local time, according to the Islamic Republic’s Tasnim news agency. The Guard did not specify the location of the air base.

The apparent attack came after American forces launched fresh strikes in Iran against a military site believed to threaten U.S. troops and commercial shipping through the Strait of Hormuz, a U.S. official told MS NOW. Several Iranian drones were also reportedly intercepted and downed.

Oil prices have tumbled more than 10% since May 18 when Trump said he called off an imminent wave of military strikes against Iran to allow more time for negotiations.

Secretary of State Marco Rubio said Wednesday that the talks have made some progress. Rubio said Trump prefers diplomacy and will give talks with Iran “every chance to succeed.”

The U.S. and Iran have been locked in a stalemate over the Strait of Hormuz since agreeing to a fragile ceasefire in April.

Iran’s state television claimed Wednesday that Tehran agreed in a draft memorandum of understanding, or MOU, with the U.S. to open Hormuz to prewar levels of commercial ship traffic, according to Reuters. But Iran and Oman would manage traffic through the strait under the MOU, state television said.

The White House dismissed the report as a “complete fabrication.” Trump said later Wednesday that no nation will control shipping through the strait.

But Middle East leaders already believe that Iran has effectively taken control of Hormuz, said Amos Hochstein, who served as a senior energy advisor to former President Joe Biden.

“No matter what happens, the Iranians will control the Strait of Hormuz for the foreseeable future, it doesn’t even matter what the deal says. Everybody in the region believes that,” Hochstein told CNBC’s “Squawk Box” on Thursday.

In a note published late Wednesday, Citigroup said oil markets were finding firmer footing as investors increasingly priced out worst-case supply disruption scenarios amid signs Washington and Tehran were moving closer to an agreement. 

Still, the bank cautioned that uncertainty over the timing of any deal was keeping central banks on alert, with policymakers weighing the possibility of tighter monetary settings in response to energy-driven inflation risks.

Citi said the prolonged run-up in crude prices was beginning to spill into broader inflation pressures, particularly through “second round effects,” prompting some central banks to grow more hawkish. 

“Wall Street wants the war to end, but the reason the war is not ending is because of Wall Street,” Hochstein said. “Wall Street wants to believe what President Trump is saying is right, that we are on the precipice of a deal any second, which is why oil prices have dropped.”