Oil Falls as Ceasefire Holds

Oil fell as the four-week ceasefire in the Middle East held on Tuesday, after clashes in the Strait of Hormuz and strikes on the United Arab Emirates triggered a jump in prices a day earlier.

Brent crude slid 4% to settle below $110 a barrel, nearly erasing all gains from Monday’s session. Open interest in the global benchmark dropped to its lowest level since August as capital shifts to the sidelines amid heightened uncertainty and volatility.

The price slide came as the US downplayed the prospect of a return to active war with Iran following clashes involving ships in the Strait of Hormuz and strikes on the UAE, including an oil terminal in the port of Fujairah.

More than 1,550 commercial vessels carrying some 22,000 sailors are currently trapped in the Persian Gulf as a result of the conflict with Iran, Chairman of the Joint Chiefs of Staff General Dan Caine told reporters on Tuesday.

The blockade of the Strait of Hormuz by both Iran and the US has led to the biggest supply disruption in history and sent oil prices soaring. Traders are trying to predict when the conflict might end and if renewed fighting might further roil markets.

Caine also said attacks by Tehran on vessels in the Persian Gulf and the UAE on Monday did not constitute a breach of a ceasefire.

The comments suggest that "yesterday’s events fall below the threshold for breaking the ceasefire are helping ease fears of re-escalation," said Rebecca Babin, senior energy trader at CIBC Private Wealth Group. "While the lack of flows remains a key issue and inventory draws this week are still expected to be significant, the market is in a near-term relief mode — even as physical movement has not fully resumed."

President Donald Trump told Salem News Channel that the war may last another two to three weeks.

Brent crude has rallied by more than 80% this year as the conflict deprived the market of hundreds of millions of barrels of oil. Access to the Hormuz waterway is subject to a double blockade, with Tehran seeking to prevent ships from transiting, while Washington stops Iran’s oil from reaching global markets.

Neither blockade showed any signs of letting up on Tuesday, with Iran launching a new protocol for vessels transiting the key shipping lane. President Masoud Pezeshkian called US expectations that Iran come to the negotiating table while subjected to a naval blockade unrealistic, the country’s state media reported.

Caine and US Defense Secretary Pete Hegseth said the so-called "Project Freedom," aimed at guiding neutral ships stranded in the Persian Gulf through Hormuz, is a temporary operation and that the US blockade of Iranian ports remains in effect.

"In view of the hostilities over the last 24 hours, the overall security situation has become more tense," Jakob Larsen, Chief Safety & Security Officer at Bimco, a shipping trade group whose members control almost two-thirds of the world’s seaborne freight capacity, said by e-mail.

"The threat of ships being attacked has increased, and the situation seems to be on an escalatory path," he added.

Oil Prices

• WTI for June delivery dropped 3.9% to settle at $102.27 a barrel in New York.
• Brent for July delivery fell 4% to settle at $109.87 a barrel.

Spiking energy costs have fanned concerns the conflict will stoke inflation while hurting growth. In the US Treasury market, 30-year yields climbed to the highest since July, topping 5%, as traders boosted wagers the Federal Reserve will have to reverse course and raise rates to curb price gains.

Saudi Arabia, meanwhile, cut the price of its main oil grade for Asia next month from a record-high in May, though it remained near historic levels as the war in the Middle East continues to severely disrupt supplies.

Traders are looking ahead to US government data set to be released on Wednesday as the newly crowned top crude supplier faces unprecedented pressure to keep up with international demand.

"Global oil markets were supported by a large inventory buffer, but recent draws suggest that cushion is declining," said Mark Malek, chief investment officer at Muriel Siebert & Co. "Continued depletion combined with supply disruption could accelerate price increases."