Key facts
- Oil prices fell sharply as traders removed geopolitical risk premiums.
- A U.S.-Iran deal to reopen the Strait of Hormuz and resume Iranian oil sales was reported.
- July WTI crude oil futures settled near $85.93, down 4.79% from the previous week.
- President Trump canceled planned military strikes against Iran, signaling a diplomatic approach.
- Analysts warn that depleted global inventories and logistical challenges may hinder a rapid supply recovery.
Oil prices experienced a sharp decline, with Brent crude futures falling below $77 per barrel and WTI futures settling near $85.93, down 4.79% from the previous week. This sell-off was triggered by reports of a deal between the United States and Iran to reopen the Strait of Hormuz and resume Iranian oil sales, leading traders to remove geopolitical risk premiums.
The agreement effectively reconnects one of the world's largest oil producers to global energy markets and eases concerns over the Strait of Hormuz, a chokepoint that handles approximately one-fifth of global oil flows. The speed of the price decline underscores how much crude's earlier rally was tied to geopolitical risk.
President Trump's decision to cancel planned military strikes against Iran and his suggestion that a peace agreement remained possible reinforced expectations of de-escalation. This shift in sentiment encouraged traders to reduce positions built around fears of a major supply disruption.
However, analysts caution that inventories remain depleted after months of disrupted flows, with global oil stocks drawing at nearly 4 million barrels per day since late February. They warn that restoring production, exports, and shipping routes is a complex process that cannot be achieved instantly, even with a peace agreement.