Oil markets experienced a dramatic downturn on Tuesday as prices tumbled by over 13%, reversing the sharp gains seen just a day earlier. This sudden decline followed former U.S. President Donald Trump’s optimistic prediction that the ongoing conflict involving Iran could come to a conclusion in the near future. His comments significantly dampened concerns about extended disruptions to global oil supplies, which had driven prices to their highest levels since mid-2022 during the previous session.
Brent crude futures, a global benchmark, dropped by $12.46 per barrel, representing a 12.6% decrease, settling at $86.50 by early afternoon Eastern Daylight Time. Similarly, U.S. West Texas Intermediate (WTI) crude fell by $12.24, or 12.9%, to $82.53 a barrel. This sharp retreat came after both benchmarks had surged past $119 per barrel on Monday, fueled by supply cuts from Saudi Arabia and other major producers, which had stoked fears of significant interruptions in oil availability worldwide.
The market’s volatility was further influenced by a phone conversation between Trump and Russian President Vladimir Putin, during which they reportedly exchanged proposals aimed at swiftly resolving the conflict. This development, coupled with Trump’s public remarks on CBS News stating that the war against Iran was “very complete” and that U.S. forces were “very far ahead” of his initial four- to five-week timeline, helped calm jittery investors and traders. The easing of tensions was also echoed by Israel’s foreign minister, who emphasized that Israel does not seek an endless war with Iran and intends to coordinate closely with the United States on the timing of any cessation of hostilities.
Despite the hopeful signals, experts caution that even if the conflict concludes soon, oil production and supply chains will not rebound instantly. Simon Flowers, chairman and chief analyst at Wood Mackenzie, explained that restarting oil wells that have been shut down for an extended period could take weeks or even longer. While stored oil products at refineries or ports might be shipped out relatively quickly, the physical ramp-up of production capacity is a much slower process, indicating that supply constraints could persist for some time.
Adding complexity to the situation, Iran’s Islamic Revolutionary Guard Corps issued a stern warning that Tehran would block any export of oil from the region if U.S. and Israeli attacks continue. This statement underscores the ongoing risks to oil shipments, particularly through the strategically vital Strait of Hormuz, a critical chokepoint for global energy trade. Meanwhile, Trump is reportedly considering measures to ease sanctions on Russian oil linked to Moscow’s war in Ukraine and is also contemplating releasing emergency crude reserves to help stabilize soaring prices.
Energy analysts like Priyanka Sachdeva from Phillip Nova highlight that these developments—potential sanction relief on Russian oil, Trump’s hints at de-escalation, and the possibility of G7 countries tapping into strategic reserves—collectively signal that oil supplies are likely to continue flowing to the market, albeit under uncertain conditions. However, G7 energy ministers have so far refrained from authorizing a release of strategic reserves, instead requesting the International Energy Agency to conduct a thorough assessment before any action is taken.
Despite the market’s hopeful reaction, the conflict on the ground remains intense. On Tuesday, the U.S. and Israel launched what both the Pentagon and Iranian sources described as the most intense airstrikes since the war began. These military actions underscore the ongoing volatility and the potential for further disruptions. Saudi Arabia’s state oil company, Aramco, warned of “catastrophic consequences” for global oil markets if the conflict continues to hamper shipping through the Strait of Hormuz.
Consultancy IIR reported that nearly 1.9 million barrels per day of crude refining capacity in the Gulf region has been shut down due to the ongoing U.S.-Israeli military operations against Iran. JPMorgan analysts cautioned that policy interventions might have limited impact on oil prices unless safe passage through the Strait of Hormuz is guaranteed, especially given the potential loss of up to 12 million barrels per day in the coming two weeks.
Further complicating the supply picture, Abu Dhabi’s state-owned oil company ADNOC temporarily closed its Ruwais refinery after a fire broke out following a drone strike at the facility. This incident adds to the already fragile state of oil infrastructure in the region. Despite these challenges, Goldman Sachs maintained its oil price forecasts, projecting Brent crude to average $66 per barrel and WTI at $62 per barrel in the fourth quarter, reflecting the fluid and unpredictable nature of the current market environment.
