Global oil prices are experiencing their most significant weekly decline since March 2023, as market participants increasingly discount the geopolitical risk premium associated with the recent Iran-Israel conflict. Despite initial volatility, the absence of material disruptions to global oil supply routes has shifted market focus back to fundamental supply and demand dynamics, causing benchmark prices to retreat to pre-escalation levels.
Market Volatility and De-escalation
Both Brent crude futures and U.S. West Texas Intermediate (WTI) have been on a downward trajectory, each heading for an approximate 12% weekly fall. This reversal follows an initial surge to a five-month high, prompted by earlier reports of U.S. military actions against Iranian nuclear sites. However, prices sharply retreated after President Donald Trump announced a ceasefire between Iran and Israel, signaling a significant de-escalation of immediate tensions in the region.
Analyst Perspectives and Fundamental Oversupply
Analysts and traders largely concur that the recent geopolitical events have had no substantial impact on global oil flow. Macquarie analysts, in a recent research note, underscored a fundamentally oversupplied market, projecting a surplus of approximately 2.1 million barrels per day (bpd) in 2025. While they adjusted their WTI forecasts upward by $2 per barrel, anticipating an average of $67 this year and $60 next year, this was primarily to account for a geopolitical risk premium that ultimately proved short-lived and has now largely dissipated.
Underlying Demand Signals and Economic Outlook
Towards the end of the week, modest price gains were observed, attributed to U.S. government data indicating a notable draw in crude oil and fuel inventories, alongside rising refining activity and demand. According to Phil Flynn, senior analyst with the Price Futures Group, this points to the market beginning to acknowledge a tightening in crude oil inventories. Further bolstering market sentiment was a Wall Street Journal report suggesting President Trump’s accelerated timeline for selecting the next Federal Reserve chief, fueling speculation of potential U.S. interest rate cuts. Such cuts would typically stimulate broader economic activity and, consequently, oil demand, offering a potential counterbalance to the bearish geopolitical narrative.
Michael Zhang is a seasoned finance journalist with a background in macroeconomic analysis and stock market reporting. He breaks down economic data into easy-to-understand insights that help you navigate today’s financial landscape.