Another Massive Oil Selloff As Traders Put Faith In Shaky Iran/Israel Ceasefire

Prices are now below where they were prior to the hostilities: File Image/Pixabay

With events following the U.S. bombing of Iran's nuclear development sites coming too fast to properly digest, oil traders on Tuesday caused a price plummet of six percent based on the assumption a ceasefire between the Islamic republic and Israel would hold – thus reducing Middle East supply risk.

However, both sides violating the ceasefire just hours after it was announced compelled some analysts to wonder if oil's massive two-daysell-off was somewhat premature.

Brent on Tuesday settled down $4.34, or 6.1 percent, at $67.14 per barrel and West Texas Intermediate settled down $4.14, or 6.0 percent, at $64.37.

Bloomberg noted that "Oil prices have dropped so much in the last two days that they're below where they were before the fighting began nearly two weeks ago" – and that this "should take some pressure off inflation, and that in turn could give the Federal Reserve leeway to resume cutting interest rates" and boost the economy.

Mukesh Sahdev, global head of commodity markets at Rystad Energy, said that if the ceasefire takes root, Brent could hover "near the $70 per barrel level while clarity on a US-Iran deal emerges."

He added that "The prospect of severe economic fallout from a potential blockade [of the Strait of Hormuz] likely motivated both sides to agree to the ceasefire, if it is indeed genuine."

Lukman Otunuga, senior market analyst at FXTM, seemed sceptical of the durability of the ceasefire, and he warned investors that "The celebration could be short-lived…..if tensions flare again or the ceasefire is violated, we could see a swift return to risk aversion — boosting safe havens like gold and pressuring global equities."

Another outcome of the shaky truce brokered by U.S. president Donald Trump between Iran and Israel was a comment Trump made early Tuesday morning on the Truth social media platform: "China can now continue to purchase oil from Iran; hopefully, they will be purchasing plenty from the U.S., also…..it was my Great Honor to make this happen!"

Some pundits viewed this as a reversal of Trump's stance just several month ago, when he threatened secondary sanctions against importers of Iranian oil, although the White House later said his remark was misinterpreted.

Ignoring the rapidly unfolding situation in the Middle East altogether, Natasha Kaneva, analyst at JPMorgan, reminded her audience that fundamentals still very much mattered to the oil market – and that circumstances in this regard weren't exactly bullish: "Beyond the short-term spike induced by geopolitics, our base case for oil remains anchored by our supply-demand balance, which shows that the world has enough oil."

Kaneva expected oil to trade in the low-to-mid-$60 range for the remainder of 2025.