Oil tumbles as Hormuz risk premium evaporates following symbolic retaliation and ceasefire deal

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Key points:

• In the last 24 hours, the geopolitical landscape has shifted dramatically - removing a supply risk premium that had built over the previous 12 days.
• A symbolic and planned to fail Iranian retaliation attack on U.S. military assets in Qatar, followed by a ceasefire announcements triggered the biggest one-day crude price slump since July 2022
• Looking ahead, the near-term outlook suggests continued volatility with news from the Middle East, OPEC+ production cuts and macroeconomic concerns all playing a role in determining the price of oil.

Since our latest update "Oil market on the edge as Hormuz risk premium builds", which highlighted the market’s nervous response to President Trump’s decision on Saturday to support Israel in a coordinated strike on Iran’s nuclear facilities, the geopolitical landscape has shifted dramatically—removing in one swift move the supply risk premium that had built over the previous 12 days.

The first turning point came late Monday when Iran, instead of targeting oil infrastructure or shipping lanes, opted for a carefully calibrated and largely symbolic response. Tehran, reportedly in coordination with Qatari officials, launched a missile strike on a U.S. military base in Qatar, giving prior warning to minimize casualties. The action was interpreted by the market as a face-saving maneuver designed to de-escalate rather than escalate hostilities.

A few hours later, Israel confirmed it had agreed to a U.S.-brokered ceasefire with Iran. The Israeli Prime Minister’s office declared that “all of the objectives” of the military campaign had been achieved, while Iran reiterated its willingness to halt further action provided Israeli attacks ceased—effectively signaling a mutual climbdown.

As noted in our previous update, the geopolitical risk premium—at one point exceeding $10 per barrel on Monday—was unlikely to be sustained in the absence of actual supply disruptions. This is especially true given macro headwinds tied to the ongoing U.S.–China trade war, and an outlook for ample supply into the autumn and winter months following recent output target increases from OPEC+.

Technical rejection near $82.50 in early Monday trading set the stage for a sharp reversal. Brent crude subsequently posted its biggest one-day drop since July 2022, plunging by nearly $14 from top to bottom to retrace the entire risk-driven rally sparked by the initial Israeli strikes on Iran 12 days ago.

Looking ahead, the near-term outlook suggests continued volatility with news from the Middle East, OPEC+ production cuts and macroeconomic concerns all playing a role in determining the price of oil. Note, despite the ceasefire agreement there are reports about missiles launched at Northern Israel and that IDF has been instructed to respond forcefully with attacks on Tehran. The recent volatility has burned both shorts and longs, and positioning across futures and options markets is likely to remain cautious, with limited appetite for large positions at this stage, and with the seasonal summer lull approaching, it may take until late August before conviction returns and positioning normalizes.