Why did oil prices fall below $74? The US-Iran agreement triggered a collapse in geopolitical premiums, and crude oil is entering a re-pricing phase.

On June 18, 2026, the international crude oil market continued its nearly two-week downtrend. During the trading session, WTI crude oil futures fell below the $74 per barrel mark, hitting a three-month low since March 4. Brent crude oil futures moved in tandem, slipping and losing the $77 per barrel level. As of June 18 Beijing time, according to Gate data, WTI crude oil futures were quoted at $73.666 per barrel, with the intraday decline widening to 3%; Brent crude oil futures fell 2.60% to $77.173 per barrel. This price range marks the official departure of international oil prices from the previously long-maintained high range of $90–$110 per barrel, entering a testing phase in a new equilibrium range of $74–$80.

The downside in this round of oil prices is not driven by a single factor, but by the resonance of geopolitical risk premium relief on the one hand and weakening macro demand expectations on the other. The peace agreement between the United States and Iran reached on June 15, along with the ensuing reopening expectations for the Strait of Hormuz and exemptions from sanctions on Iranian oil, together form the core negative factors on the supply side; meanwhile, expectations of a global economic slowdown, hawkish signals from the Federal Reserve, and soft consumption of refined oil fuel from the demand side create sustained downward pressure. Under this dual pressure, energy-sector ETFs faced comprehensive strain, with capital continuing to flow out.

Concentrated Clearance of Geopolitical Risk Premiums: The U.S.-Iran Agreement Reshapes the Global Oil Supply Landscape

The direct catalyst for the current fall in oil prices is the implementation of the U.S.-Iran peace agreement. On June 15, U.S. President Trump announced on Truth Social that the agreement with Iran had been finalized. On June 17 (Wednesday), the two countries officially signed a provisional agreement in France. The core contents include: ending the Iran war, reopening the Strait of Hormuz, and exempting sanctions on Iranian oil.

The Strait of Hormuz carries about one-fifth of global oil transportation volume. Since the outbreak of the conflict, closing this route has directly removed from the market crude oil supply amounting to millions of barrels per day. Under the agreement, Iran will immediately restart operations in the Strait of Hormuz, while the United States will lift the maritime blockade and oil sanctions. This arrangement directly strips away the geopolitical “panic premium” that had been embedded in oil prices.

From the quantitative data on Iranian oil supply, the impact of sanctions and blockades is extremely significant. Since the United States launched the maritime blockade in April, Iran’s crude oil exports have plunged from about 1.1 million barrels per day in March to 65,000 barrels in May; production has fallen from about 3.5 million barrels per day before the war to 2.3 million barrels in May. After the agreement takes effect, Iran is allowed to re-enter the international energy market. Based on pre-war production levels and current oil prices, Iran’s annual oil revenue is expected to exceed $60 billion. Even in only the first two months after the agreement takes effect, Iran could earn around $8 billion.

There are already clear signs of loosening at the transportation level. According to tracking data, starting this week, at least three tankers carrying more than 5 million barrels of crude oil have departed from Chabahar Port and crossed the blockade line previously set up by the U.S. Navy—this is the first time such passage has occurred since the April blockade was implemented. A senior U.S. official said that, under the ceasefire agreement, the United States will exempt sanctions on Iranian oil, which could additionally increase the supply by several million barrels.

In its monthly market report released on Wednesday, the International Energy Agency (IEA) warned that if the agreement is successfully implemented, the reopening of the Strait of Hormuz could turn this year’s supply crisis into a serious oversupply by 2027. The IEA expects that with Middle Eastern oil returning to the market, next year there will be a surplus of 5.05 million barrels per day. Broader estimates show that if the conflict is resolved on a sustained basis, the incremental global crude oil supply could be about 8 million barrels per day, while demand recovery would be about 2 million barrels per day.

However, there remains disagreement in the market about how quickly supply will recover. Oil analysts point out that rebuilding confidence among shipowners, insurers, and refiners takes time; factors such as demining, insurance costs, and port congestion could all lead to crude oil flows moving more slowly than expected. Karobaar Capital’s chief investment officer said, “The market often treats reopening as something you can finish by flipping a switch, but in reality, it’s more like a process.”

Multiple Demand-Side Pressures Combined: From High Oil Prices Suppressing Consumption to Systemic Economic Weakening

If the geopolitical agreement addresses supply-side issues, then the other end of the pressure faced by oil prices today comes from persistent weakening on the demand side. The bearish logic behind crude oil demand has upgraded from the shallow impact of “high oil prices suppressing end consumption” to the deeper pressure of “systemic economic weakness eroding global total crude oil demand.”

OPEC Continues to Cut Demand Forecasts. On June 11, OPEC, in its latest monthly oil market report, lowered its forecast for global oil demand growth in 2026 to 970,000 barrels per day, down from the previous expectation of 1.17 million barrels per day, marking the second consecutive month of downward revisions. This trend suggests that the oil-producing organization itself is also cautious about the outlook for global oil consumption.

Soft Signals in U.S. Refined Oil Consumption. U.S. gasoline inventories increased more than expected, which the market views as a clear negative signal. A refined oil analyst at Longzhong Information pointed out that the substitution from new energy sources and the suppressing effect of high oil prices on end consumption have continued, and gasoline consumption has remained weak. With high oil prices and weakening economic prospects both at work, vehicle fuel demand has begun to show signs of decline.

Hawkish Fed Signals Suppress Economic Expectations. On June 17, the Federal Reserve’s first FOMC meeting presided over by its newly appointed chair, Kevin W. Waller, concluded. The Fed decided to keep the target range for the federal funds rate unchanged at 3.50%–3.75% for the fourth consecutive time. However, the hawkish signals released at the meeting are more critical. The dot plot shows that the median interest rate for 2026 rises to 3.8%, implying an additional rate hike expectation versus the current 3.625%. Among 19 policymakers, 9 believe rate hikes are needed, whereas none held this view three months ago. Affected by high oil prices, the 2026 PCE inflation level rose sharply from the 2.7% forecast in March to 3.6%. Nearly half of the Fed decision-makers no longer believe that keeping borrowing costs steady alone is sufficient to bring the inflation rate down to the 2% target level. This policy stance means higher borrowing costs and potential slowing of economic growth, which exerts downward pressure on crude oil demand.

The divergence among various institutions regarding the outlook for oil prices also reflects uncertainty in the market. Goldman Sachs lowered its forecast for Brent crude in Q4 2026 from $90 per barrel to $80 per barrel; Morgan Stanley cut its forecast for the average Brent price in Q3 from $100 per barrel to $90 per barrel; Citibank lowered its forecasts for Q3 and Q4 2026 to $75 per barrel and $70 per barrel, respectively. Citibank analysts said that if the market is pricing in the agreement itself rather than the certainty of mid-term flow through the Strait of Hormuz, crude oil prices could be about $10 to $15 per barrel lower than current levels.

Energy-Sector ETFs Face Broad Pressure: Capital Outflows and Net Asset Value Pullbacks

The sharp drop in oil prices directly transmitted to ETFs related to the energy sector. Exchange-traded products tracking the energy sector generally recorded significant declines, while capital continued to flow out.

On June 16, Energy ETF Tianfu (159930) fell 1.93%, with net fund outflows of 70.27 million yuan from main funds; on the same day, GF CSI All-Industry Energy ETF (159945) closed down 2.18%, with trading value of 14.8262 million yuan. Energy & Chemical ETF (159981) led the decline by falling 6.79% on June 15; S&P Oil & Gas ETF (513350) fell 5.65%; and Coal ETF (515220) fell 4.55%.

Looking over a longer period, GF’s energy ETFs’ net asset value dropped 5.32% over the past week and 5.96% over the past month. In terms of their top holdings, major energy-weighted stocks such as China Shenhua, China National Petroleum Corporation, Shaanxi Coal Industry, and CNOOC all recorded declines to varying degrees.

The weakening of energy-sector ETFs reflects the market’s reassessment of the earnings outlook for energy companies. When oil prices were in the $90–$110 per barrel range, profit margins for upstream extraction firms were extremely rich. But when oil prices fall back to the $74–$80 range, even though they remain at a historically mid-to-high level, margin compression is already enough to trigger fund reallocations. Lyon Securities expects the average Brent crude price in the first half of this year to be $94, and the second half to remain above $80 per barrel—meaning that even if this forecast holds, the average in the second half would still be about 15% lower than in the first half.

A Tug-of-War Between Near-Term Logic and Mid-Term Variables

The current pricing logic for oil prices is in a delicate transition. In the short term, the supply-side shock from the U.S.-Iran agreement has been quickly absorbed by the market. Over three trading days, WTI dropped from above $80 to below $74, and the week’s decline at one point reached 10%. But as multiple analysts have noted, further downside room may be limited.

On the supply side, even though the agreement has been signed, restoring supply is a gradual process. Analyst from Fangzheng Mid-term Futures noted that even with the agreement, oil exports from Gulf countries still heavily depend on the Strait of Hormuz; shipping recovery and supply growth both require time. In the short term, tight supply conditions will continue to provide support to the oil price center. Citic Jianheng also believes the market has underestimated upside risks for oil prices in both the short and medium term. The Strait of Hormuz has been closed for weeks, more oil wells have been forced to shut down, and prolonged shutdowns will lead to permanent loss of some capacity.

On the demand side, the arrival of the summer peak oil-consuming season may, to a certain extent, offset concerns about demand. The latest data from the U.S. Energy Information Administration (EIA) shows that, for the week ended June 12, U.S. commercial crude inventories fell by 8.26 million barrels, nearly double the expected decline of 4.6 million barrels. This confirmed the tenth consecutive week of inventory decreases and brought crude stocks to the lowest level in more than 40 years. Extremely low inventory levels imply the market has very limited buffer capacity against any supply shocks, which provides downside support for oil prices.

However, mid-term uncertainty cannot be ignored. The IEA’s warning of severe oversupply by 2027, potential pathways for Federal Reserve rate hikes, and a slowdown in global economic growth could all continue to exert sustained downward pressure on oil prices in the coming quarters. The 60-day negotiation period included in the U.S.-Iran agreement, as well as unresolved thorny issues such as Iran’s nuclear matter, also means geopolitical risks have not been fully eliminated—only temporarily entering a period for observation.

Conclusion

On June 18, 2026, WTI broke below $74 and Brent fell below $77, marking a dramatic adjustment in international oil prices under the dual suppression of the U.S.-Iran peace agreement and demand concerns—shifting from a high level of geopolitical risk premium pricing back to fundamental-based pricing. The reopening expectations for the Strait of Hormuz and the waivers on sanctions for Iranian oil remove the core geopolitical factors that had previously supported oil prices on the supply side; meanwhile, OPEC’s continuous downward cuts to demand forecasts, weak U.S. refined oil consumption, and the Fed’s hawkish shift continue to apply pressure from the demand side. The broad weakening of energy-sector ETFs is the natural reflection of this logic in capital markets.

Within this new price range of $74–$80, the market is recalibrating its judgment on supply-demand fundamentals. The gradual nature of supply recovery in the short term, together with extremely low inventory levels, provides downside support for oil prices, while the mid-term risk of oversupply and expectations of demand weakness form the upside ceiling. Whether this equilibrium can be sustained depends on the quality of implementation of the U.S.-Iran agreement during the 60-day negotiation period, the strength of the summer oil-demand rebound, and the direction of global macroeconomic developments.