Crude oil prices fell sharply as the market became less concerned that U.S.-Iran tensions could escalate into a major supply shock.
After the two sides reached a temporary peace agreement, market sentiment shifted quickly. Investors began taking profits, while fears of potential supply disruptions also started to fade.
As a result, oil prices have declined for several consecutive sessions, with Brent retreating to around USD 78 per barrel and WTI trading near USD 75 per barrel.
U.S. inventory data still suggests that physical supply remains relatively tight. According to the EIA, U.S. commercial crude inventories fell by 8.2 million barrels in the latest week, far more than expected.
This followed a draw of more than 7.2 million barrels in the previous week. Back-to-back large inventory declines suggest that demand is not as weak as some had feared, especially as the U.S. summer driving season continues to support fuel consumption.
What is making the market more cautious is the outlook ahead. OPEC has again lowered its forecast for global oil demand growth in 2026 to around 970,000 barrels per day, reflecting concerns that slower economic growth could weigh on energy demand. At the same time, the IEA has warned that the market could move into a larger surplus from 2027 if Middle East supply fully recovers and shipping through the Strait of Hormuz returns to normal.
For now, the oil market remains caught between two opposing forces. On one hand, easing geopolitical risks are putting downward pressure on prices. On the other hand, the sharp decline in U.S. inventories shows that the short-term supply-demand backdrop is not weak.
In my view, crude oil still looks more vulnerable to further downside than to a strong recovery at this stage. The steep fall in U.S. inventories does show that near-term supply is not overly abundant, but it is not enough to offset the impact of easing geopolitical concerns. The market’s focus remains on expectations for a U.S.-Iran agreement and the possibility that oil flows through the Strait of Hormuz will gradually stabilize. If this sentiment continues to dominate, oil prices may extend their decline, while inventory data may only help prices find a new balance at lower levels rather than trigger a clear reversal.
In the short term, if expectations for a U.S.-Iran deal continue to hold, WTI could remain under pressure and gradually move toward the USD 70 per barrel area. At lower price levels, buyers may start to return, especially if inventory data continues to show that supply is not excessive. However, any unexpected development that renews concerns over the Strait of Hormuz or Middle East supply could help oil prices stabilize quickly before opening the door to a fresh rebound.
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