Oil prices plummeted by more than $10 a barrel on Tuesday after soaring to an almost four-year high in the previous session after US President Donald Trump predicted the war in the Middle East could end soon, lowering expectations of prolonged disruptions to oil supply.
Brent futures were down $10.45, or 10.6 per cent, at $88.51 a barrel by 1504 GMT (11:04 a.m. EDT), while US West Texas Intermediate (WTI) crude was down $10.61, or 11.2 per cent, at $84.16.
Oil surged to more than $119 a barrel on Monday to its highest since mid-2022 as supply cuts by Saudi Arabia and other producers stoked fears of major disruptions to global supplies.
Prices later retreated after Trump and Russian President Vladimir Putin had a call and shared proposals aimed at a quick settlement to the war, according to a Kremlin aide.
Trump said on Monday in a CBS News interview that he thought the war against Iran was “very complete” and Washington was “very far ahead” of his initial four- to five-week estimated time frame.
“Clearly Trump’s comments about a short-lived war have calmed markets. While there was an overreaction to the upside yesterday, we think there is an overreaction to the downside today,” said Suvro Sarkar, energy sector team lead at DBS Bank.
Even if the war ends, oil supplies won’t immediately rebound, said Simon Flowers, chairman and chief analyst at Wood Mackenzie.
“When the conflict ends, cranking up the supply chain won’t be swift,” Flowers said. “Product barrels in storage at refineries or in port might be moved on vessels quite quickly. But if wells are shut-in for a prolonged period, restarting production to full output could take weeks or even longer.”
In response to Trump, Iran’s Islamic Revolutionary Guards Corps said Tehran would not allow “one litre of oil” to be exported from the region if US and Israeli attacks continued, state media reported on Tuesday.
Meanwhile, Trump is considering easing oil sanctions on Russia and releasing emergency crude stockpiles to help curb spiking prices, according to multiple sources.
“Discussions around easing sanctions on Russian oil, comments from Donald Trump hinting that the conflict could eventually de-escalate, and the possibility of G7 countries tapping strategic oil reserves all pointed to the same message – that oil barrels will somehow continue to reach the market,” Priyanka Sachdeva, a Phillip Nova analyst, said in a note.
G7 energy ministers stopped short of deciding on a release of strategic oil reserves in a call on Tuesday.
Saudi Arabia’s Aramco, the world’s top oil exporter, said on Tuesday there would be “catastrophic consequences” for the world’s oil markets if the Iran war continues to disrupt shipping in the Strait of Hormuz.
“Policy measures may have limited impact on oil prices unless safe passage through the Strait of Hormuz is assured, given the potential losses of up to 12 million bpd over the next two weeks,” JPMorgan said in a note.
In the latest disruption to global supplies, Abu Dhabi state oil giant ADNOC has shut its Ruwais refinery, a source said on Tuesday, after a fire broke out at a facility within the complex following a drone strike.
Goldman Sachs said because the situation remains fluid, it was not changing its oil price forecast for Brent at $66 per barrel in the fourth quarter and WTI at $62 per barrel.
