Oil prices continue to plunge on Monday afternoon following US President Donald Trump’s announcement of a tentative ceasefire between Israel and Iran, significantly reducing geopolitical risk premiums. West Texas Intermediate (WTI) crude for August delivery fell as much as 5.1% to $65.02 per barrel during early trading in Asia, marking its lowest level since before the conflict began on June 13.
The announcement of a ceasefire, described by Trump on Truth Social as “complete and total,” follows intense diplomatic negotiations involving the US, Israel, Iran, and Qatar. If maintained, this ceasefire would effectively conclude a 12-day conflict sparked by Israeli airstrikes targeting Iranian nuclear sites and military installations, which prompted missile retaliation by Tehran. The heightened tensions had previously spiked oil prices due to fears of supply disruptions in the critical Middle East region, responsible for roughly a third of global oil production.
Throughout the escalation, major oil infrastructure and critical choke points, particularly the Strait of Hormuz, remained untouched, moderating initial fears of significant supply disruptions. With the immediate threat of further military escalation easing, market attention is expected to shift back toward oil market fundamentals.
The broader outlook for crude suggests increasing supply relative to demand in the latter half of the year, potentially resulting in a build-up of global inventories and further downward pressure on prices.
While President Trump expressed confidence that the ceasefire could become permanent, the phased implementation—beginning with Iran ceasing hostilities, followed by Israel within 24 hours—remains to be confirmed officially by both nations. However, according to Axios, Iran conveyed a message to the White House via Qatar that it would not carry out further attacks and that its response was over.
Should the ceasefire hold, markets will likely experience sustained downward pressure on prices. Traders and analysts would increasingly factor out geopolitical risks that had inflated oil prices and turn their focus toward tangible fundamentals again. This recalibration could lead to more predictable and possibly lower volatility in the next few weeks.
By Tom Kool for Oilprice.com
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