A day of historic turmoil for the oil markets: barrel drops to $90 after reaching nearly $120

The oil market has experienced another heart-stopping session amid the conflict in Iran. Monday dawned with panic reigning supreme: oil futures shot up 30% to almost $120 a barrel while stock markets plummeted. Then, an hour and a half before Wall Street closed, U.S. President Donald Trump told CBS News that the war “is very complete.” Following his remarks, and after reports pointing to a possible takeover of the Strait of Hormuz, the price of Brent crude oil, the benchmark in Europe, fell sharply to close at around $90 per barrel. The session was marked by unprecedented instability: there was a nearly $30 intraday swing between the highest and lowest levels of the session.

The lifeline came in two stages. First, from the G-7 finance ministers, who showed their willingness to take the necessary joint measures to support global energy supplies, including the possible release of emergency oil reserves. Although no agreement has been reached yet, the mere display of willingness gave investors some breathing room. Then, Trump’s own remarks acted as a further balm for oil prices. At least for now. Despite the president’s assertions, it remains unclear whether the situation on the ground will calm down as quickly as the market is now taking for granted.

Traders also had early doubts about the extent to which price pressure could influence the White House. Trump remarked on the rise in oil prices on social media in a post on his platform, Truth Social, where he stated that “short term oil prices, which will drop rapidly when the destruction of the Iran nuclear threat is over, is a very small price to pay for U.S.A., and World, Safety and Peace.”

Several Persian Gulf producers, such as Iraq, Kuwait, and the United Arab Emirates, have begun to reduce oil production because, with the Strait of Hormuz closed and their crude oil storage facilities overflowing, they do not have the physical capacity to export more oil. According to Reuters, in the case of Iraq, the cut has already reached 70%. According to Bloomberg, Saudi Arabia has reduced production, as the pipeline that allows it to bypass the Strait has a capacity of around eight million barrels per day and the kingdom produces eight million. In total, according to JP Morgan, four million barrels have been taken out of production, although the daily supply loss is greater, between 15 and 20 million.

Until now, investment bank analyses pointed to a rapid recovery in oil flows, leaving the price rise as a one-off event.

Nicola Grass, an expert at Zürcher Kantonalbank, which manages the Swisscanto funds, points out that the U.S. Military “continues to face difficulties in securing the Strait of Hormuz.” Without the deployment of ground troops to the Iranian coastal region, “the tense situation could last longer than initially anticipated.” Furthermore, “regime change in Tehran remains unlikely.” Nevertheless, this expert maintains that a resolution is expected “within the next three to five weeks.”

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