NEW YORK/LONDON: Oil prices plunged by more than 11% on Tuesday, the steepest percentage drop of any session since 2022, a day after US President Donald Trump predicted a quick end tothe war with Iranthat has disrupted global crude flows.
Brent futures fell US$11.16, or 11%, to settle at US$87.80 a barrel. US West Texas Intermediate (WTI) crude settled at US$83.45 a barrel, down US$11.32, or 11.9%. Both benchmarks logged the biggest single-day percentage loss since March 2022, after rocketing to four-year highs a day earlier.
Prices temporarily sank lower in midday trade, after US Energy Secretary Chris Wright wrote on X that the American military had facilitated a shipment of oil out of the Strait of Hormuz.
"President Trump is maintaining stability of global energy during the military operations against Iran," Wright posted at 1:02 p.m. local time before the post appeared to be removed.
"The US Navy successfully escorted an oil tanker through the Strait of Hormuz to ensure oil remains flowing to global markets," Wright said.
Trump's Republicans will soon be campaigning to retain control of US Congress in November midterm elections, with many voters worried about rising energy prices.
"This is the market reacting to the possibility that the Strait of Hormuz could reopen," said Andrew Lipow, founder of Lipow Oil Associates. "From the administration’s perspective, the move also carries clear optics: lower oil and gasoline prices help ease consumer pain."
On Monday, both crude benchmarks surged to a session high above US$119 a barrel, their highest since June 2022, as supply cuts by Saudi Arabia and other producers stoked fears of major disruptions to global supplies.
Prices settled with more modest gains on Monday, then retreated in late trade and into Tuesday after Trump and Russian President Vladimir Putin had a call and shared proposals aimed at a quick settlement to the war, according to a Kremlin aide.
In addition, Trump said on Monday in a CBS News interview that he thought the war against Iran was "very complete" and Washington was "very far ahead" of his initial four- to five-week estimated time frame.
Israel's foreign minister said Israel is not seeking an endless war with Iran and will coordinate with the US on when to end the fighting.
Brent oil prices are set to trade above US$95 a barrel over the next two months as the Iran war disrupts supplies, before falling to around US$70 by the end of the year, the Energy Information Administration said in a monthly report.
Even if the war ends, oil supplies will not immediately rebound, said Simon Flowers, chairman and chief analyst at Wood Mackenzie.
"When the conflict ends, cranking up the supply chain won't be swift," Flowers said. "Product barrels in storage at refineries or in port might be moved on vessels quite quickly. But if wells are shut-in for a prolonged period, restarting production to full output could take weeks or even longer."
In response to Trump, Iran's Islamic Revolutionary Guard Corps said Tehran would not allow "one litre of oil" to be exported from the region if US and Israeli attacks continued, state media reported on Tuesday.
Meanwhile, Trump was considering easing oil sanctions on Russia related to Moscow's war in Ukraine, and releasing emergency crude stockpiles to help curb spiking prices, according to multiple sources.
"Discussions around easing sanctions on Russian oil, comments from Donald Trump hinting that the conflict could eventually de-escalate, and the possibility of G7 (Group of Seven) countries tapping strategic oil reserves all pointed to the same message – that oil barrels will somehow continue to reach the market," Priyanka Sachdeva, a Phillip Nova analyst, said in a note.
G7 energy ministers stopped short of agreeing on a release of strategic oil reserves on Tuesday and instead asked the International Energy Agency to assess the situation before acting.
The US and Israel pounded Iran on Tuesday with what the Pentagon and Iranians on the ground said were the most intense airstrikes of the war, even as global markets bet that Trump will seek to end the conflict soon.
Saudi Arabia's Aramco, the world's top oil exporter, said there would be "catastrophic consequences" for global oil markets if the Iran war continues to disrupt shipping in the Strait of Hormuz.
Nearly 1.9 million barrels per day of crude refining capacity in the Gulf has been shut in due to the U.S.-Israeli war on Iran, consultancy IIR said.
"Policy measures may have limited impact on oil prices unless safe passage through the Strait of Hormuz is assured, given the potential losses of up to 12 million bpd over the next two weeks," JPMorgan said in a note.
In the latest disruption to global supplies, Abu Dhabi state oil giant ADNOC has shut its Ruwais refinery, a source said on Tuesday, after a fire broke out at a facility within the complex following a drone strike.
Goldman Sachs said that because the situation remains fluid, it was not changing its oil price forecast for Brent at US$66 per barrel in the fourth quarter and WTI at US$62 per barrel. — Reuters
