Brent crude futures plunged to their lowest level in more than a week on Tuesday after U.S. President Donald Trump declared that Israel and Iran have agreed to a full ceasefire, extinguishing fears of supply disruptions that had driven prices sharply higher. West Texas Intermediate (WTI) fell nearly 4%, marking its steepest one-day drop since early June, as markets reassessed geopolitical risk premiums and weighed fresh data on inventories and demand.

Ceasefire Eases Middle East Risk Premium

When President Trump announced late Monday that Israel would halt its strikes on Iran’s nuclear facilities within 12 hours of Tehran’s own ceasefire, oil traders interpreted the news as a major de-escalation in a region that supplies more than a tenth of the world’s oil. Brent fell $2.69, or 3.8%, to settle at $68.79 a barrel, its weakest finish since June 11. WTI slid $2.70, or 3.9%, to $65.46, swinging from earlier intraday losses of over 6%.

Analysts noted that the prior week’s surge—when prices rallied to five-month highs after coordinated U.S. and Israeli airstrikes—had built in a substantial “Middle East premium.” With the ceasefire in place, that cushion all but vanished. Oil producers in the Gulf, including Iran (OPEC’s third-largest output nation), no longer faced a credible threat of pipeline disruptions, tanker diversions or port closures. As a result, traders swiftly unwound positions that had benefited from elevated supply-risk assumptions.

Beyond geopolitics, U.S. weekly inventory data released earlier on Tuesday showed a surprise build in both crude stocks and gasoline supplies at key storage hubs, suggesting that domestic demand remains tepid. Crude inventories at the Cushing, Oklahoma delivery point ticked higher for the third straight week, while the American Petroleum Institute reported an unexpected increase of 1.2 million barrels.

Meanwhile, signs of slowing consumption in China—where refinery run rates dipped to a two-month low—have dampened near-term demand prospects. Summer driving season fuel sales in the United States have also underperformed forecasts, with rising pump prices prompting motorists to curtail discretionary trips. Together, higher stockpiles and flagging demand have pressured benchmarks lower, even as refiners ramp up throughput ahead of impending maintenance season.

Technical Resistance Intensifies Selling Pressure

Market technicians observed that crude failed to sustain a rally above the $78–$80 range where it encountered stiff resistance in recent weeks. The abrupt reversal on the ceasefire news reinforced that barrier, making it increasingly unlikely that prices will revisit those highs without a fresh shock to supply. In mid-session trading, Brent slid through its 20-day moving average, a technical signal that prompted algorithmic and momentum traders to add to short positions.

“Crude’s inability to breach that resistance zone underscores how reliant prices have been on geopolitical premiums,” said a commodities strategist at a London brokerage. “Absent unanticipated supply disruptions—be they weather-related outages or fresh sanctions—oil is poised to test support levels around $66 and even $64 in the coming days.”

OPEC+ Patience Amid Record Production

Adding to bearish sentiment, OPEC+ ministers have shown no urgency to convene extraordinary meetings despite the recent price swing. Last month, the group agreed to maintain production quotas for July, betting that global demand would absorb record levels of supply. Saudi Arabia and the United Arab Emirates have indicated they see little need for immediate cuts, pointing to robust consumption in Asia and healthy petrochemical feedstock usage in Europe.

That stance contrasts with past episodes when OPEC+ swiftly adjusted output in response to geopolitical flare-ups. The current freeze has left traders skeptical that the cartel will serve as a backstop, further undermining the old assumption that any Middle East tension automatically translates into tighter markets.

Refiners Eye Margin Squeeze, Consumers Catch a Break

Lower crude prices have bolstered refining margins in recent sessions, as the cost of feedstock falls while product spreads remain relatively firm. Gulf Coast refiners, in particular, have enjoyed improved profitability on diesel and jet fuel cracks, even as gasoline margins narrowed. Some operators have signaled plans to ramp up runs next week, anticipating better utilization ahead of the U.S. hurricane season—an event that historically tightens regional fuel supplies.

On the flip side, softer oil has translated into easing wholesale gasoline prices at the pump. Motorists in major metropolitan areas have seen average regular unleaded prices dip by as much as 8 cents per gallon over the past three days, providing some respite amid ongoing inflation concerns.

Despite this week’s pullback, analysts caution that volatility will remain elevated. The ceasefire—while welcome—carries its own uncertainties. Observers note that past Israel–Iran confrontations have often flared anew within weeks, and any reported violations could quickly restore the premium.

Moreover, evolving sanctions on Venezuela and potential renewed curbs on Russian exports loom on the horizon, serving as reminders that structural supply constraints can re-emerge. Seasonal refinery turnarounds in Asia and Europe could also tighten product markets, offering intermittent support for crude.

For now, however, market participants appear content to gauge the sustainability of the ceasefire and monitor official data on inventories, OPEC+ communications and regional weather patterns. With global economic growth forecasts showing signs of moderation and central banks signalling interest-rate pauses, the confluence of macro headwinds and geopolitics suggests that oil may trade in a wide $60–$75 range in the near term.

As the summer heat intensifies in the Northern Hemisphere, both demand drivers and geopolitical fault lines will shape crude’s path. Tuesday’s sell-off underscores how swiftly sentiment can shift when the primary catalyst for higher prices—fear of oil supply disruption—fades from the headlines.

(Adapted from EconomicTimes.com)

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