Oil drops 6% as Israel-Iran ceasefire eases Middle East supply fears

Global oil markets saw a sharp correction Tuesday, with prices tumbling over 6% following the announcement of a tentative ceasefire between Israel and Iran. The move reversed weeks of heightened energy prices, which had been driven by fears of sustained military escalation across one of the world’s most sensitive energy corridors.

Brent crude shed US$4.34, closing at US$67.14 a barrel—its lowest level since June 10. US West Texas Intermediate (WTI) fell in tandem, dropping US$4.14 to settle at US$64.37, a price last seen before Israel’s surprise strikes earlier this month. This sudden retreat points to a swift unwinding of geopolitical risk premiums. For now, at least, traders seem to be betting that the risk of immediate disruption to energy flows in the Gulf has faded into the background.

Only a few days ago, crude was trading at five-month highs. Israel’s June 13 strike on Iranian nuclear and military sites had sent prices surging, with markets bracing for a wider regional escalation that could entangle the US and disrupt global oil transport routes. In particular, the Strait of Hormuz—through which roughly one-fifth of the world’s crude supply travels—was seen as a flashpoint. Speculation mounted over whether Washington would impose additional sanctions, or even deploy naval forces to secure maritime channels.

Then came the ceasefire. However provisional, it was enough to flip the market’s mood. “The geopolitical risk premium built up since the first Israeli strike on Iran almost two weeks ago has entirely vanished,” noted Tamas Varga, senior analyst at PVM Oil Associates. Traders didn’t wait for confirmation of stability—they priced in the potential for de-escalation the moment it became plausible.

That said, the ceasefire rests on uneven ground. Not long after it was announced, President Donald Trump accused both sides of breaching the deal, casting doubt over its longevity. Yet markets largely shrugged off the rhetoric.

Why? Because in energy markets, perception often moves prices more than reality. It’s not uncommon for a thin signal of stability to trigger a major repricing—especially when the alternative is sustained volatility. With no immediate follow-up strikes or sanctions, traders took their cue: risk-off. This isn’t the first time diplomacy has briefly overpowered firepower in market psychology. Whether that holds beyond the next news cycle is another matter.

Another source of pressure came from Trump himself, this time in the form of remarks suggesting China would be allowed to continue importing oil from Iran.

Markets didn’t miss the implication: if the world’s largest oil buyer faces no penalty for purchasing Iranian barrels, then more supply may return to global circulation than previously expected. Whether or not this amounts to a formal sanctions shift, the signal was enough to reinforce the perception that global constraints are loosening. For now, that perception carries weight—especially when paired with other supply-side developments.

On the production front, new numbers from Kazakhstan and Guyana added to the bearish tilt. Kazakhstan revised its 2025 output forecast from the Tengiz oilfield upward, targeting 35.7 million metric tons. In Guyana, May output climbed to 667,000 barrels per day, up from 611,000 the month before, thanks to expanded capacity from ExxonMobil.

While these figures may seem incremental, they carry narrative significance. They remind the market that even amid global tension, oil supply continues to scale—sometimes quietly, sometimes strategically. Adding complexity, several Opec+ countries have also nudged output higher in recent weeks, undercutting collective efforts to maintain supply discipline. The message: not every member is playing the long game.

If the supply side looked looser, the demand side didn’t offer much reassurance either. US consumer confidence dipped unexpectedly in June, as Americans grew more cautious about job security and the broader economy’s direction under Trump’s tariff agenda.

Layer in commentary from Federal Reserve Bank of New York President John Williams—who flagged slower growth and lingering inflation—and the result is clear: hopes for rate cuts that might stimulate oil demand are dimming. It’s a one-two punch for crude markets: geopolitical fear recedes, and macro weakness creeps in.

Upcoming US inventory data, due from both the American Petroleum Institute (API) and the Energy Information Administration (EIA), may offer a marginal lift—but expectations remain muted. Analysts are forecasting a draw of about 800,000 barrels for the week ending June 20. If accurate, this would mark five straight weeks of declining inventories, a streak not seen since January.

Even so, the draw pales against historical benchmarks. The same week last year saw a 3.6 million barrel build, and the five-year average shows a typical reduction of 2.5 million barrels. In context, this week’s data may not be strong enough to shift sentiment. When risk-off momentum builds, fundamentals often get drowned out.

Despite this week’s decline, oil remains comfortably above levels seen at the start of 2025. But the market’s heightened sensitivity to geopolitical flashpoints has not vanished—merely paused.

The Israel-Iran ceasefire may offer a reprieve, but it doesn’t resolve the underlying tensions. Nor does it settle the question of how US policy toward Iran will evolve. With sanctions enforcement, naval presence, and diplomatic tone all subject to change, energy traders remain on alert. Opec+ cohesion is another unresolved variable. If output discipline erodes further, prices could slide even without fresh headlines from the Gulf.

A 6% drop in oil prices isn’t just a number—it’s a recalibration. Investors are adjusting to a world where fears of immediate disruption are no longer driving the tape. But that doesn’t mean the risk is gone. It’s simply being repriced. Energy markets are stepping back from the brink, not stepping into stability. Until the geopolitical picture clarifies, don’t expect this calm to settle into a trend. For now, markets are keeping one hand on the exit.