Quick overview
- Oil prices fell sharply last week due to easing Middle East tensions and a hawkish Federal Reserve, with WTI crude dropping toward $73 per barrel and Brent crude around $86 per barrel.
- The decline was primarily driven by a peace agreement between the U.S. and Iran, which alleviated supply concerns and led traders to unwind positions benefiting from geopolitical uncertainty.
- Despite strong gains in global equity markets, the Federal Reserve’s restrictive outlook on interest rates added pressure to oil prices by strengthening the U.S. dollar.
- China’s comfortable oil stockpiles and reduced imports during the conflict may limit the pace of demand recovery, potentially leading to further downward pressure on global oil prices.
Live USOIL Chart
USOIL
Oil prices fell sharply last week as easing Middle East tensions and a hawkish Federal Reserve reduced inflation fears and weakened concerns about global supply disruptions.
Crude Extends Weekly Decline
Crude oil prices came under significant pressure last week as investors shifted their focus from geopolitical risks to improving diplomatic developments and a more hawkish Federal Reserve outlook.
West Texas Intermediate (WTI) crude dropped toward the $73 per barrel area, while Brent crude fell to around $86 per barrel, erasing much of the conflict-driven gains that had supported energy markets in recent months. Although both benchmarks found technical support near those levels, buying interest remained limited and no meaningful rebound emerged before the end of the week.
The decline occurred despite strong gains in global equity markets, highlighting how quickly traders removed the Middle East risk premium that had previously been embedded in oil prices.
Iran Peace Agreement Eases Supply Concerns
The primary catalyst for the selloff was the formal peace framework reached between the United States and Iran.
Following weeks of negotiations, both sides signed an agreement that lays the groundwork for broader diplomatic engagement and future nuclear discussions. Reports indicate that Iran has agreed to abandon efforts to develop nuclear weapons and eliminate its stockpile of highly enriched uranium as part of the framework.
Investor optimism increased further after confirmation that the Strait of Hormuz would gradually reopen to normal shipping activity. The waterway remains one of the world’s most important energy corridors, handling roughly one-fifth of global oil shipments.
President Trump’s comments that the Strait of Hormuz would soon be “open for business” reinforced expectations that global energy flows would normalize, significantly reducing fears of supply disruptions.
As a result, traders aggressively unwound positions that had previously benefited from geopolitical uncertainty.
Hawkish Federal Reserve Adds Pressure
Oil markets also faced headwinds from the Federal Reserve’s latest policy meeting.
Although the central bank left interest rates unchanged, policymakers surprised markets by signaling a more restrictive outlook for the years ahead. Updated economic projections suggested the possibility of a rate increase in 2026, a notable shift from earlier expectations that focused on eventual policy easing.
Federal Reserve Chair Kevin Warsh emphasized the central bank’s commitment to restoring price stability and avoided providing any indication that interest-rate cuts were imminent.
The hawkish stance strengthened the U.S. dollar and pushed Treasury yields higher. A stronger dollar often weighs on commodity prices by making dollar-denominated assets more expensive for international buyers and reducing speculative demand.
PCE Inflation Data Becomes Key Focus
Looking ahead, investor attention is turning toward the upcoming U.S. Personal Consumption Expenditures (PCE) inflation report, the Federal Reserve’s preferred inflation measure.
Economists expect core PCE inflation to show another firm monthly increase, reflecting lingering price pressures across parts of the economy despite recent declines in energy costs. Some forecasts suggest that annualized inflation measures could reach their highest levels in nearly two years.
However, falling oil prices may help moderate inflation pressures in coming months if the recent weakness in energy markets persists.
WTI Oil Plunges but the 200 Daily SMA Holds for Now
Crude oil was the standout loser of the session as traders aggressively priced out Middle East supply disruption risk.
- WTI crude fell from $87.30 to $80.57
- Brent crude dropped from $85 to below $75 per barrel
The move represents a sharp weekly collapse of more than $5.50, driven almost entirely by the Iran deal narrative. The scale and timing of the decline also raised speculation that positioning may have been adjusted ahead of the announcement, given oil’s unusual stability earlier in the session.
Technically, the breakdown opens the door toward a potential move into the $80 region, assuming follow-through momentum persists.
Hormuz Reopening Brings Relief to Energy Markets
As negotiations continue between the United States and Iran over restoring normal shipping activity through the Strait of Hormuz, attention is increasingly turning to China, the world’s largest crude oil importer.
A full reopening of the strategic waterway would allow numerous tankers that have been stranded in the Persian Gulf during the conflict to resume their journeys toward Asia. Many of these cargoes are destined for China, potentially creating a temporary surge in deliveries once normal maritime traffic resumes.
However, analysts believe China is unlikely to significantly increase new oil purchases in the near term despite the improvement in supply conditions.
China Holds Comfortable Oil Stockpiles
Unlike many countries that emerged from the conflict with reduced energy inventories, China appears to remain well supplied.
State-owned energy companies are believed to be holding substantial crude reserves, while strategic petroleum stockpiles have reportedly remained largely untouched throughout the conflict. In addition, refinery storage facilities are said to be well stocked with gasoline, diesel, and other refined petroleum products.
This comfortable inventory position gives Beijing greater flexibility and reduces the urgency to increase imports immediately following the reopening of Hormuz.
Imports Fell Sharply During the Conflict
During the conflict, China reduced daily oil imports by roughly one-third as rising crude prices discouraged purchases.
The decline in Chinese demand helped offset some of the upward pressure on global oil prices caused by disruptions to shipping routes through the Persian Gulf.
China was able to cut imports so aggressively because it entered the crisis with unusually large inventories. For several years, the country has pursued a strategy of buying additional crude whenever prices were favorable, building stockpiles to strengthen energy security and improve resilience against future supply disruptions.
Strategic Shift Supports Commodity Accumulation
China’s inventory buildup has also reflected broader financial and geopolitical considerations.
In recent years, Beijing has increasingly directed surplus foreign exchange earnings toward strategic commodity reserves, including oil, rather than accumulating additional foreign financial assets. The policy gained momentum after Western governments froze Russian foreign reserves following the Ukraine conflict, highlighting potential vulnerabilities associated with holding large overseas assets.
As a result, China entered the recent Middle East conflict with significant energy reserves already in place.
Limited Demand Recovery Could Pressure Oil Prices
While the reopening of the Strait of Hormuz should improve global supply flows and reduce logistical bottlenecks, China’s well-stocked position may limit the pace of demand recovery.
Many analysts expect Chinese buyers to remain cautious, particularly since oil prices remain above pre-conflict levels despite their recent decline.
If Chinese imports remain subdued while Middle Eastern exports gradually normalize, global oil markets could face additional downward pressure. For now, the combination of strong inventories and elevated prices suggests that China is unlikely to become an immediate source of renewed demand growth for crude oil.
Skerdian Meta
Lead Analyst
Skerdian Meta Lead Analyst.
Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank’s local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
www.fxleaders.com