Oil slumped by over 4% on Thursday, eroding a five-day rally just as the risk of US military strikes in retaliation for deadly attacks on the American embassy in Iraq faded and widespread protests continued to grip Iran. Brent crude futures slid more than 3% to around $64 per barrel, while West Texas Intermediate (WTI) fell steeply towards $60 a barrel, indicating a quick retreat of the geopolitical risk premium that had driven prices to their highest in two months.
Trump comments defuse strike fears
The selloff picked up after Trump said that the killing of anti-government protesters in Iran “stopped” and there were no plans for mass executions, a move away from earlier threats to make Tehran “pay a big price” for cracking down on dissent. Traders read the remarks as a bit of a de-escalation, reducing the odds that U.S. action may be imminent that could disrupt Iranian oil production or the Strait of Hormuz through which 20% of global crude flows.
Iran, OPEC’s third-largest producer, currently produces more than 3 million barrels per day (bpd) of oil and exports about 1.5 million bpd despite U.S. sanctions. Fear of supply disruptions had helped send prices up more than 10% earlier this week, but Thursday’s comments led to a quick reversal, as Brent dropped by $2.50 and WTI by nearly $2.50 in afternoon trading.
Volatility underscores Iran’s fragile situation
Analysts warned that the market is on tenterhooks, pointing to Iran’s track record of flouting agreements and its scope for renewed provocation. The “nervous” short-term view that’s emerging is one reason why Trump’s “watch it and see” stance opens the door for escalation if the protests rekindle, said Alex Kissler, senior vice president of trading at BOK Financial.
The protests, driven by economic privation and regime crackdowns, had prompted fears of instability in a key oil exporter that controls the Hormuz chokepoint. Trump’s reversal came after reports of Iranian restraint at the same time that analysts cautioned about continuing underlying tensions.
Broader market context
The drop was driven by conflicting U.S. figures: steep gains in crude stockpiles had added pressure to the downside, offsetting previous concerns over supply. Despite Thursday’s drop, both benchmarks are still up more than 2% year-to-date on the back of broader geopolitical risks including U.S. involvement in Venezuela.
Energy stocks rebounded – Indian OMCs such as HPCL, BPCL and IOC rose up to 4% on cheaper crude hopes which can lower input cost for refiners. Globally, Chevron shares fell with oil, but the sector caught a break from de-escalation.
Outlook: High volatility ahead
Markets are now looking to OPEC+ decisions and policy in the United States under Trump, who has consistently sided with a policy of high energy production. Analysts at IG highlighted major residual threats from Iran and this was enough to keep futures skittish. With Brent below $65 and WTI near $60, the lightning swing from rally to rout highlights how presidential rhetoric can roil commodities
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