Oil prices post biggest drop in 2 weeks, airline stocks surge on hopes the U.S.-Iran war will soon end

By Isabel Wang and Myra P. Saefong

The EIA reports a significant drop in U.S. crude oil inventories, but oil prices mainly reacted to the potential de-escalation with Iran

President Donald Trump suggested Wednesday that a deal with Iran is close, while oil prices pulled back.

Oil futures marked their biggest one-day decline in two weeks Wednesday after President Donald Trump suggested that a deal with Iran was close, raising hopes for a resolution to the months-long stalemate in the Middle East.

Reports that a total of 26 ships passed through the Strait of Hormuz in the past 24 hours also helped ease global oil-supply worries and contributed to the fall in prices.

Traders who expected Trump to resume the war with Iran were caught "flat-footed" by the potential for an end to the conflict, said Phil Flynn, senior market analyst at the Price Futures Group. Reports of more ships transiting through Hormuz, meanwhile, seemed to "reduce the risk of some of the doomsday predictions" for global oil supplies.

West Texas Intermediate crude saw its most-active July contract (CL.1) (CLN26) fall 5.7% to settle at $98.26 a barrel, while Brent crude futures for July delivery (BRN00) (BRNN26) were off 5.6% to end at $105.02 a barrel. Both benchmarks saw their biggest daily drops since May 6, and settled at their lowest since May 11, according to Dow Jones Market Data.

The U.S. oil benchmark's drop below $100 a barrel also fueled a relief rally for U.S. airline stocks, with shares of Delta Air Lines (DAL) and United Airlines (UAL) each up by 10%. The U.S. Global Jets exchange-traded fund JETS climbed by nearly 7% on Wednesday afternoon, on pace for its best day since Aug. 12, according to Dow Jones Market Data.

Airlines have raised fares and cut flights as jet-fuel prices skyrocketed after the U.S. and Israel launched their war on Iran in late February. The closure of the Strait of Hormuz, a key waterway for nearly 20% of the world's oil supply, has also fueled concerns about a potential jet-fuel shortage ahead of the peak summer travel season.

See: Airfares are up 21% since last year. Here are the summer destinations where you can still get a deal.

The president, before speaking to U.S. Coast Guard graduates on Wednesday, told reporters in brief remarks that the U.S. and Iran were in the "final stages" of talks to end the conflict. Trump gave no timeframe but delivered a warning to Tehran that either there will be a deal, or "we're going to do some things that are a little bit nasty."

Oil prices were also reacting to reports that a new round of negotiations between the U.S. and Iran will be held in Pakistan. A Saudi Arabian news channel reported on Wednesday that work is underway to finalize the text of an agreement between Washington and Tehran, and that a final version of the agreement between America and Iran may be announced within hours.

Citing sources familiar with the matter, it was also reported that a new round of negotiations between the U.S. and Iran will be held in Islamabad after the Hajj season. The Hajj pilgrimage to Mecca takes place May 25-27 this year.

Over the past three months, it's been "readily apparent" that the White House's rhetoric on Iran can sway from one end of the spectrum - threats to resume the war - to the other end - optimism about a deal - within a brief span of time, said Pavel Molchanov, Raymond James investment strategy analyst.

So he cautioned that traders should "take any single day's comments with a grain of salt."

At the same time, U.S. petroleum inventories are falling, with the Energy Information Administration on Wednesday reporting a significant 7.9 million-barrel drop in U.S. crude oil inventories for the week ending May 15. That was a fourth straight weekly decline and substantially surpasses market expectations of a reduction of around 2.5 million barrels.

Including a 9.9 million-barrel drawdown in the nation's Strategic Petroleum Reserve, total U.S. oil supply just fell by the most in a single week on record, according to Tyler Richey, editor at Sevens Report Technicals.

Supply drawdowns would usually help lift oil prices. But optimism surrounding U.S.-Iran peace deal prospects are overshadowing the "increasingly dire" declines for U.S. and international supplies, said Richey.

For now, traders are discounting a "seamless return to normal global oil flows once the Strait of Hormuz is reopened," he said.

Robert Schroeder, Claudia Assis and Nora Redmond contributed.

-Isabel Wang -Myra P. Saefong

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05-20-26 1528ET