Oil drops below $70 as Iran-Israel ceasefire eases fears of broader war

Oil prices tumbled sharply at the start of the week, dropping more than 7% on Monday as fears of a major disruption to Middle East energy supplies eased. The sell-off followed Iran’s limited retaliation to recent US airstrikes, choosing to target a US military base in Qatar rather than disrupt oil flows through the Strait of Hormuz, a crucial global energy chokepoint. With no casualties reported and tanker traffic unaffected, traders quickly began unwinding the geopolitical risk premium built into prices last week.

Brent crude futures settled down $5.53 at $71.48/bbl, its biggest one-day drop since August 2022, while WTI (NYMEX) crude matched the decline, closing at $68.51/bbl. Both benchmarks fell further in after-hours trading and extended losses into Tuesday, with Brent dropping to $68.77/bbl at the time of writing, following news that Israel had accepted a US-brokered ceasefire with Iran.

Market fears of broader conflict were sparked over the weekend after the US struck key Iranian nuclear facilities. Iran had previously threatened to close the Strait of Hormuz, through which about a fifth of the world’s oil flows. But its retaliatory strike on the Al Udeid airbase in Qatar, a telegraphed, non-lethal action, was widely seen as a signal that Tehran was looking to de-escalate rather than provoke a wider war. The absence of further attacks or energy disruptions further calmed markets.

The ceasefire agreement, announced by President Trump and confirmed by Israeli Prime Minister Netanyahu, eased concerns of a prolonged conflict. Analysts said the agreement reduces the likelihood of further oil supply disruptions, especially from OPEC member Iran. Trump expressed a desire to keep oil prices low and reiterated his push for increased domestic production, urging the Energy Department to “drill, baby, drill.”

While the potential for future flare-ups remains, the market appears to be shifting its focus back to fundamentals. Analysts noted that unless Iran or Israel resumes hostilities, oil prices could stabilize or fall further. “The geopolitical premium is evaporating,” said Tony Sycamore, analyst at IG, adding that it would take a significant new threat to break through resistance levels near $80/bbl.