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Crude futures rebounded to a certain extent on Tuesday, recovering part of the sharp losses incurred during the previous session as markets reassessed geopolitical developments in the Middle East.
Monday’s decline has taken the price of oil back to below USD 100 a barrel, and into the consolidation range it has been trading in since 2023.
Earlier optimism around potential negotiations to end the tensions in the region receded to a certain extent after Iran rejected claims of diplomatic progress and as military operations continued in the area.
In the meantime, the situation in the Strait of Hormuz remains the central concern for market participants. Despite some isolated shipments going through, the broader flow of oil tankers was still constrained as the waterway remains effectively closed for traffic.
Coordinated responses from G7 countries could provide some temporary relief to the market. The decisions to release crude volumes from strategic reserves and lift sanctions on oil from Iran and Russia could help limit the severity of the surge, although they remain unlikely to fully offset ongoing disruptions.
Looking ahead, the oil market could remain highly reactive to the geopolitical developments in the Middle East. Without a clear resolution to the tensions within the period announced by the US, volatility is likely to persist, with risks skewed toward further increases in prices. Caution remains predominant until a clear direction has been confirmed, while the current whipsaw nature of price action increases risk of potential losses for traders.
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