Crude Crashes as the War Premium Evaporates

Crude oil suffered its biggest one-day drop in four years on Tuesday, with WTI falling 11.9% to US$83.45 a barrel and Brent dropping 11% to US$87.80. Natural gas also moved lower, marking the sharpest single-day percentage loss for both oil benchmarks since March 2022.

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Brent Dumped 11%, Hormuz Still Sets the Tail Risk

There were three main drivers behind the decline. First, President Trump said the war with Iran could be close to ending and may wind down sooner than markets had expected, which eased fears around a prolonged supply disruption. That led traders to strip out part of the geopolitical risk premium that had pushed crude sharply higher.

Second, the G7 signalled it was prepared to stabilise the market if needed. Officials asked the IEA to prepare scenarios for a possible strategic reserve release, which added to the view that governments were ready to step in if energy prices remained under pressure.

Third, the move was amplified by a false signal. U.S. Energy Secretary Chris Wright posted on X claiming the American military had facilitated a shipment of oil through the Strait of Hormuz. The post was later deleted, but it briefly pushed prices even lower as traders reacted to the headline.

Despite the selloff, the physical situation remains serious. Traffic through the Strait of Hormuz is still heavily disrupted, and Reuters reported that hundreds of tankers remain idle while Gulf crude flows are under severe pressure. That means the market may have removed some of the fear premium, but the underlying supply risk has not disappeared.