Oil prices fell because traders rapidly reduced the “geopolitical risk premium” that had been built into crude prices.

Earlier in the day, Brent crude had risen on fears that disruption to the Strait of Hormuz—through which roughly one-fifth of the world’s seaborne oil normally passes—might persist. However, U.S. Treasury Secretary Scott Bessent later said that a deal to restore freedom of navigation through the Strait could be reached within a day or two. Those comments changed market sentiment dramatically.

The key reasons oil fell were:

Lower supply risk. If the Strait reopens, tankers can once again transport crude from Saudi Arabia, the UAE, Kuwait, Iraq and Qatar without the current level of disruption. Markets immediately price in a lower probability of supply shortages.
Removal of the “war premium.” During conflicts, oil often trades well above what supply and demand alone would justify because traders insure against the possibility of a major disruption. Positive diplomatic news causes that premium to evaporate quickly.
Expectations of higher exports. A successful agreement could allow more Middle Eastern oil to reach global markets, including potentially higher Iranian exports over time, increasing expected supply.
Speculative selling. Many hedge funds and commodity traders had bought oil as protection against escalating conflict. Once optimism about a deal emerged, many rushed to take profits, accelerating the price decline.

The market reaction was substantial. According to Reuters, Brent crude fell by nearly 5% during trading, while WTI dropped by more than 5%, reversing earlier gains.

Will oil stay lower?

That depends on whether the agreement is actually implemented.

There are two broad scenarios:

If the deal succeeds If negotiations fail
Tanker traffic gradually returns to normal. Shipping remains disrupted.
The geopolitical premium continues to unwind. Risk premium returns quickly.
Brent could settle back toward the $75–80 range over coming weeks if supply normalises. Brent could move back above $90, with spikes possible if attacks on shipping continue.

It’s also worth noting that traders remain cautious.

Although Bessent expressed optimism, there have still been attacks on commercial vessels and shipping risks remain elevated, so markets are waiting for evidence that commercial traffic is actually moving freely before fully pricing in a lasting resolution.

Lee Green