Oil Prices Drop Following Temporary Ceasefire Between Israel and Iran

The price of oil extended its decline as U.S. President Donald Trump announced a temporary ceasefire between Israel and Iran. Brent crude futures fell nearly 2% to 3%, trading around $66-$67 per barrel. Gold retreated as safe-haven demand eased. In a move aimed at reducing risk, Trump stated that Israel and Iran had agreed to a ‘full ceasefire,’ set to begin around midnight New York time, according to a post on Truth Social. Separately, Iranian Foreign Minister Abbas Araghchi said Iran would stop firing if Israeli strikes ceased, Bloomberg reported. The oil market has been shaken by the Middle East crisis due to concerns that the conflict could disrupt supplies from the region, which accounts for about one-third of global crude. Prices initially surged but later pared gains as the confrontation evolved, with all parties avoiding hits on oil-related infrastructure and ships continuing to pass through the Strait of Hormuz with minimal disruptions. The prompt spread of Brent – the difference between the two nearest contracts – narrowed to 84 cents per barrel in backwardation. Although still an upward trend, it has decreased from last week’s high close of $1.77 per barrel. The crisis erupted earlier this month as Israel attacked Iran in an effort to eliminate its nuclear program, decapitate its leadership, and weaken its military, prompting Tehran to retaliate with missile strikes. Trump then ordered a strike on Iran’s nuclear installations, followed by limited Iranian retaliation against a U.S. airbase in Qatar. If the temporary ceasefire holds, traders may refocus on fundamental market factors. Expectations are widespread that oil supply will outpace demand during the second half of the year, boosting global inventories. The OPEC+ alliance, including Iran, is rapidly restoring idle production capacity to regain market share, with further output increases expected in the coming months. Trump has made clear his preference for cheaper energy to support his economic agenda amid aggressive trade policies. On Monday (June 25), he urged producers to lower oil prices following U.S. military strikes on Iran, while encouraging the Energy Department to boost drilling. JD Vance, speaking on Fox News after Trump’s ceasefire announcement, stated that the U.S. bombings over the weekend hit their targets, claiming Iran can no longer build nuclear weapons. Lower oil prices could help ease global inflationary pressures, aiding central bankers’ challenges and potentially supporting interest rate cuts. Recently, Federal Reserve officials Christopher Waller and Michelle Bowman suggested they might support a July cut if inflation remains contained. ‘In a week and a half, OPEC+ will agree to increase production by another 400,000 barrels per day,’ said Robert Rennie, head of commodities and coal research at Westpac Banking Corp. ‘As we progress into Q3 – with global production rising and demand falling, driving inventories sharply higher – we will see prices testing the lower end of the previous $60-65 range.’