Story
Oil Prices Retreat as Markets Weigh US-Iran De-Escalation Hopes Against Military Strikes
Summary
Crude oil benchmarks fell on Thursday, reversing sharp prior-day gains, as investors focused on comments from President Trump suggesting a diplomatic off-ramp despite recent military exchanges between the U.S. and Iran.
Oil prices declined on Thursday, pulling back from multi-week highs as traders weighed the prospect of de-escalation in the Middle East against a fresh round of military strikes between the United States and Iran. The reversal suggests markets are placing more emphasis on potential diplomacy over immediate supply disruption risks.
By mid-afternoon, Brent crude futures for September delivery fell 2.7% to $75.88 a barrel, while West Texas Intermediate (WTI) crude futures dropped 2.6% to $71.64 a barrel, according to market data. The move erased a portion of Wednesday's rally, which saw Brent surge over 5% and WTI climb more than 4% on news of the escalating conflict.
Traders Focus on Trump's Deal Comments
The sell-off gained momentum after U.S. President Donald Trump told reporters that Iran had "called" and wanted "to make a deal so badly." While the President questioned whether Iran would honor an agreement, the comments were interpreted by some market participants as a sign that a full-scale military conflict could be avoided.
"Whilst the situation in the Middle East continues to deteriorate, the oil price has actually fallen today as markets bet that whilst Trump might not chicken out, he’s also unlikely to have the appetite for the war with Iran to continue for long," said Danni Hewson, head of financial analysis at AJ Bell, in a note.
Military Escalation Threatens Gulf Supply
AdThe market's cautious optimism follows a significant military escalation. The U.S. military conducted strikes on approximately 170 targets in Iran over Tuesday and Wednesday in retaliation for recent attacks on three commercial oil tankers. According to reports, targets included air defense systems and Islamic Revolutionary Guard Corps assets.
Iranian state media reported that its armed forces responded by striking U.S. bases in the region. The conflict has heightened concerns over the stability of oil shipments through the Strait of Hormuz, a critical waterway for global energy supply.
Strait of Hormuz Shipments at Risk
The renewed fighting casts doubt on a recent recovery in Gulf oil exports that followed an interim peace deal signed last month. Analysts at ANZ noted the latest events have rebuilt a geopolitical risk premium into crude prices, warning that a collapse of the U.S.-Iran understanding could interrupt tanker traffic.
Shipping tracker Kpler said on Thursday that the attacks and subsequent retaliation have "weakened confidence in the reopening" of the waterway. Separately, TankerTrackers.com reported that Tehran shipped out 10 million barrels of crude and fuel oil overnight, a move some analysts believe was made in anticipation of a potential U.S. naval blockade.