Oil prices declined yesterday with Brent declining at one point by 14%. The primary trigger was President Trump’s announcement of a five-day pause on planned U.S. strikes against Iranian power plants, coupled with his claims of “productive” discussions with Iran toward de-escalation and potentially ending the conflict.
Markets interpreted this as lowering immediate geopolitical risks to global supply, despite Iran’s denials of any talks, prompting a rush to unwind risk premiums and triggering heavy selling.
Additional downward pressure came from announcements that both the IEA and the U.S. would increase releases from strategic reserves to help stabilize prices amid disruptions. However, this decline in prices appears purely sentiment driven. Fundamentals remain supportive of higher prices: no clear signs on the ground the war is nearing an end, ongoing supply risks in the Middle East, including lingering Hormuz issues and facility damage, and no major resolution on the ground.
Meanwhile, markets were further unnerved by a massive Ukrainian drone attack on Russia’s Primorsk oil port, a key Baltic export hub handling over 1 million bpd, which damaged fuel tanks, sparked major fires, suspended tanker loadings, and raised fresh concerns about Russian export disruptions, even as the focus remains on the Middle East. We expect prices to rebound as reality sets in.