Oil Falls in Six Years, What's Going On
Crude oil prices fell sharply after the United States and Iran agreed to a two-week ceasefire that was seen as potentially halting the US-Israeli military campaign, with Tehran's conditional reopening of the Strait of Hormuz. This development triggered a massive sell-off as the market began to unwind the geopolitical risk premium that had built up as the threat of supply disruptions grew.
Brent crude briefly plunged as much as 16% to below US$92 per barrel, while West Texas Intermediate (WTI) recorded its deepest drop in nearly six years before trading around US$95. US President Donald Trump declared the ceasefire conditional on the opening of the Strait of Hormuz and allowed time for the agreement to be "finalized."
From the Iranian side, Foreign Minister Abbas Araghchi said Iran accepted Pakistan's ceasefire proposal, adding that safe passage through the Strait of Hormuz would be possible for two weeks in coordination with its armed forces. Israel also reportedly agreed to the ceasefire, according to a White House official, bolstering market perceptions that tensions would ease in the short term.
The Strait of Hormuz has become a focal point because it normally carries about a fifth of global oil and LNG trade, so the previous near-closure shook energy prices. Despite the sharp price rebound, WTI has still recorded a nearly 50% increase since the conflict began in late February. On the physical supply side, shipping restrictions are estimated to have halted more than 9 million barrels per day of oil production from major Middle Eastern producers during April, according to US government estimates. Therefore, a recovery in supply flows will not automatically occur simply because sentiment improves.
Westpac believes the physical commodity system will not return to normal quickly. According to Robert Rennie, the process of restarting idled wells, reorganizing crews and vessels, and rebuilding refinery inventories could take months. This statement underscores the gap between a rapid price reaction and a slower supply chain adjustment.
Prior to this pause, the market faced military escalation and harsh threats from Washington ahead of Trump's deadline. That same day, US forces reportedly attacked a site on Kharg Island, similar to last month's attack, but not targeting energy infrastructure, according to US officials. In a price update in Singapore, Brent for June fell around 14% to US$93.82 per barrel, while WTI for May fell around 15% to US$96.42 per barrel, reflecting aggressive risk repricing.
5 key points:
- Oil fell sharply after the US and Iran agreed to a two-week ceasefire conditioned on the opening of the Strait of Hormuz.
- Brent briefly fell as much as 16% to below US$92; WTI recorded its deepest decline in nearly six years before settling around US$95.
- Iran said the Hormuz safe passage "may" be opened for two weeks through military coordination; Israel also reportedly agreed.
- Although sentiment has eased, physical supply is expected to recover slowly; US government estimates suggest that more than 9 million bpd of Middle East production was "shut in" during April.
- The market has shed its geopolitical risk premium, but volatility could return if the implementation of the ceasefire or access to Hormuz is disrupted. (asd)
Source: Newsmaker.id
