Oil outlook: Brent may stay elevated despite truce hopes; $80-$95 in focus

Even a successful reopening may not bring oil prices down sharply, as the scale of disruption and the time required for markets to rebalance will keep oil elevated in the range of $80-95 range.

Crude oil outlook: Crude oil markets have entered June with prices rebounding sharply after Brent recorded its worst monthly performance since March 2020, shedding more than 19 per cent from its April close, as markets aggressively priced in the prospect of a negotiated reopening of the Strait of Hormuz. WTI fell by around 17 per cent over the same period. That optimism had initially unravelled as the diplomatic track fractured and military exchanges intensified, pushing both benchmarks up nearly 10 per cent across the week's first three sessions, with WTI closing near $96/bbl and Brent at $97.8/bbl on Wednesday.

 

Today, however, brought a meaningful shift as prices edged lower after Israel and Lebanon agreed to a ceasefire conditional on Hezbollah standing down, a development that could directly unlock the stalled US-Iran negotiations by removing Tehran's central precondition for resuming talks.

 

 

The central complication throughout May has been Iran's insistence that any agreement must address not just its conflict with the US but also the fighting between Israel and Hezbollah, a condition Washington has shown limited appetite to accept. That fault line cracked open on June 1 when Tehran suspended all indirect communications with Washington and threatened complete closure of the Strait, stating no dialogue would resume until Israel fully withdraws from Lebanon and Gaza. The overnight response illustrated how quickly the situation can deteriorate. US forces struck a military ground control station on Qeshm Island while Iran retaliated with ballistic missiles at Kuwait and Bahrain, struck a Liberian-flagged vessel, and Iranian drones damaged Kuwait's international airport, suspending all flights. The exchange was not an aberration, it was the logical consequence of a negotiating framework that had never resolved its most fundamental disagreement.

 

Secretary of State Rubio, testifying before Congress, confirmed that any sanctions relief for Iran would be strictly conditional on its nuclear programme, not simply on reopening the Strait of Hormuz.

 

Trump pressed Israel to scale back its Lebanon offensive, Netanyahu publicly defied him, but the Israel-Lebanon ceasefire, contingent on a complete cessation of fire from Hezbollah, now potentially changes that calculus. If it holds, it removes one of Iran's core sticking points and reopens the possibility of resumed dialogue with Washington.

 

The physical market has reasserted itself alongside futures. After briefly flipping to a slight discount on June 2nd, when Brent traded at $95.37 against futures at $96, suggesting markets were beginning to price in a potential resolution, the spread has reversed.

 

On June 3rd, Brent closed at $98.80 against futures at $97.80, restoring a physical premium of around $1. That reversal matters as it signals that physical buyers are once again paying above paper market levels for actual barrels, reflecting the renewed escalation near Qeshm Island and persistent Gulf loading constraints.  Geopolitical risk permanent component of pricing  Kuwait Petroleum Company has also warned that restoring output would take considerably longer than markets assume, even if Hormuz reopens imminently, a reminder that a headline agreement would mark only the beginning of a protracted supply recovery. Since the naval blockade began in April, six commercial vessels have been disabled and 122 redirected, concrete evidence that flows remain deeply compromised.

 

This combination of ongoing diplomatic failures and episodic physical disruptions indicates the market is beginning to treat geopolitical risk as a more permanent component of pricing. Consequently, oil prices are likely to remain more volatile, and news-driven moves may persist longer rather than reversing quickly. The location of risk is crucial as Qeshm Island sits at the mouth of the Strait of Hormuz.  $80–95 range in focus

 

Any sustained escalation there would instantly re-tighten flows and likely reset physical premia higher. It is also worth noting that even a successful reopening may not bring prices down sharply, as the scale of wartime disruption and the time required for the market to rebalance means oil could remain elevated in the $80–95 range well beyond any headline agreement.

 

Yet even as the macro picture remains fluid, domestic prices continue to maintain a constructive weekly outlook despite the recent pullback from higher levels. MCX Crude Oil has rebounded sharply from the ₹8,270 support zone and remains above its key medium-term trend support, indicating that the broader recovery structure is intact. On the 4-hour chart, prices are holding near the 20-period and 100-period moving averages, while momentum indicators continue to show signs of underlying strength.

 

As long as MCX Crude Oil sustains above the crucial ₹8,900–8,850 support band, the bullish bias is likely to remain valid. A move above ₹9,180 could trigger fresh buying interest, paving the way for an advance towards ₹9,600–9,850 in the coming weeks.

 

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(Disclaimer: This article is by Kaynat Chainwala, AVP - commodity research of Kotak Securities. Views expressed are his own.)