The United States confirms Iran's ceasefire, international oil prices plummet

International oil prices fell sharply after the U.S. government confirmed that the ceasefire with Iran is still in effect.

In local time on the 5th, the Intercontinental Exchange (ICE) Brent crude oil futures for July delivery closed at $109.87 per barrel, down 3.99% from the previous trading day; the New York Mercantile Exchange’s June-delivered U.S. West Texas Intermediate (WTI) crude oil futures closed at $102.27 per barrel, a decline of 3.90%. In recent days, oil prices surged rapidly due to instability in the Middle East, but on that day the market focused more on the possibility that supply disruptions may not immediately become severe, rather than the expansion of war.

The key background behind this drop is that, although tensions around the Strait of Hormuz have continued, the U.S. has still said that the ceasefire arrangement remains effective. U.S. Defense Secretary Pete Hegseth said that day that the ceasefire with Iran is still holding. The Strait of Hormuz is a crucial passage for transporting crude oil from Middle Eastern oil-producing countries, so the likelihood of a blockade or military conflict in the region would directly push up international oil prices. Conversely, if signals indicate that conflicts will not escalate into a full-scale war, markets often quickly return to stability.

Actual sea transport has not been completely halted, which has also to some extent eased investor concerns. Danish shipping company Maersk said that the U.S.-flagged vessel “Alliance Fairfax” passed through the Strait of Hormuz the day before under escort by the U.S. military. Although limited, the fact that some vessels are still transiting has been understood to mean that the crude oil supply network has not been completely paralyzed. The crude oil market is sensitive not only to physical supply itself, but also to the safety of transportation routes, and this related concern has been alleviated to a certain extent this time.

There are also views in the market that this decline is not merely a reversal of a “relief rally.” Energy consultancy Ritterbusch and Associates said that the U.S. government’s optimistic ceasefire remarks sparked selling, but this drop also shows characteristics of a technical adjustment following the sharp surge earlier last week. When prices jump sharply in the short term, profit-taking is prone to occur, and this oil price decline also overlaps with that trend. This pattern suggests that, in the future, oil prices may still experience large fluctuations depending on the level of military tension in the Middle East, the navigability situation in the Strait of Hormuz, and further statements from the U.S. government.