Oil prices sank to three-month lows on Tuesday as traders anticipated a surge in Middle Eastern supply following a U.S.-Iran ceasefire deal, even as its full terms remained unclear.
Brent crude futures, the global benchmark, fell $1.44, or 1.7%, to $81.73 a barrel by mid-morning in London, marking their lowest point since March 10.
Across the Atlantic, U.S. West Texas Intermediate followed suit, shedding $1.55, or 1.9%, to settle at $79.20 a barrel, a level not seen since that same March date when the first tremors of this geopolitical crisis rattled energy trading floors worldwide.
The sell-off compounds what was already a brutal start to the week. On Monday, prices cratered nearly 5%, their steepest single-day decline in months, after U.S. President Donald Trump announced that a memorandum of understanding had been signed to end the military conflict between the United States, its Israeli allies, and Iran. Markets moved swiftly, even as the White House stopped well short of releasing the full terms of the agreement.
For all the market movement, traders are operating largely in the dark. Details of the preliminary accord remain scarce, and that uncertainty is fuelling as much anxiety as relief in the trading pits.
Iranian Foreign Minister Abbas Araqchi sought to fill some of that vacuum on Tuesday, confirming that Tehran and Washington would convene a fresh round of negotiations in Switzerland this Friday, aimed at hammering out a final, binding agreement.
Speaking to reporters, Araqchi described the current arrangement as an “interim deal,” a fragile scaffold upon which a more permanent structure must still be built.
But he wasted no time issuing a sharp warning: any renewed Israeli military action in Lebanon, or the continued presence of Israeli forces on Lebanese soil, would constitute a direct breach of the preliminary terms.
The statement underscored just how delicate the diplomatic architecture remains and how quickly the situation could unravel, taking any oil price relief with it.
The Strait of Hormuz, the narrow channel separating the Arabian Peninsula from Iran, was closed following the escalation of the conflict, dealing an immediate and severe shock to global energy supplies.
Roughly one-fifth of all oil consumed worldwide passes through that chokepoint on any given day, making its closure the equivalent of slamming shut a valve on the planet’s energy arteries.
Now, with a ceasefire framework in place, analysts are racing to model what a reopening might mean. Some expect flows to resume in short order, a prospect that is already contributing to the bearish sentiment battering prices.
Goldman Sachs, one of Wall Street’s most closely watched commodities desks, moved swiftly to revise its outlook on Tuesday. The bank slashed its fourth-quarter Brent crude forecast to $80 a barrel, down from a previous estimate of $90, and trimmed its 2027 average projection to $75 from $80.
If the supply picture is bearish, the demand story is offering traders no consolation whatsoever. A confluence of indicators has pointed to softening physical oil markets in recent weeks, and Tuesday brought further confirmation of that malaise.
China, the world’s single largest crude importer and the engine of global oil demand for much of the past two decades, saw its crude imports slump a staggering 29% in May compared to the same month last year, hitting their lowest level in eight years.
The figures, which extend a sharp and sustained decline in Chinese demand, are alarming by any measure. Compounding the concern, shipments of Saudi crude to China are expected to fall further in July, signaling that the weakness is not a one-month anomaly.
Morgan Stanley analysts, in a note circulated to clients, pointed to a range of market signals all telling the same dispiriting story: the physical oil market is softening, and there is little in the near-term horizon to suggest a sharp reversal.
For now, the ceasefire framework, still awaiting final ratification, is reported to include two headline provisions: a reopening of the blockaded Strait of Hormuz and a 60-day extension of the military ceasefire.
That two-month window is designed to create breathing room for far more complex negotiations, including the thorniest issue of all, Iran’s nuclear program.
Whether that breathing room will be enough to produce a durable settlement remains deeply uncertain. Decades of failed diplomatic efforts on Iran’s nuclear ambitions serve as a sobering backdrop to whatever optimism is emanating from Washington and Tehran this week.
For oil traders, the calculus is similarly complex. A durable peace could suppress prices for months as Gulf barrels return to the market. A breakdown, by contrast, could send prices screaming back above $90 in a matter of days.
WHAT YOU SHOULD KNOW
Oil prices have dropped to three-month lows driven by two converging forces: the prospect of Middle Eastern oil supplies resuming through the Strait of Hormuz following a preliminary U.S.-Iran ceasefire deal and rapidly weakening global demand, most starkly illustrated by China’s 29% crash in crude imports.
While the ceasefire has injected cautious optimism into markets, the deal remains incomplete and fragile, with final negotiations still ahead.
