Global oil prices are on course for their steepest quarterly decline since the COVID-19 pandemic, with easing geopolitical tensions in the Middle East wiping out much of the war-driven premium that had briefly lifted crude prices earlier this year.
As at the time of writing 07:17 am (WAT), international benchmark Brent crude traded at $73.05 per barrel, up 0.14%, while U.S. West Texas Intermediate (WTI) stood at $69.58 per barrel, gaining 0.12%. Despite the modest recovery, both benchmarks remain on track to close the quarter with losses of about 30%, marking their biggest quarterly slump since the first quarter of 2020.
The sharp decline follows the easing of concerns over crude supply disruptions after the United States and Iran agreed to continue diplomatic negotiations. The development has restored confidence in oil shipments through the strategically important Strait of Hormuz, allowing tanker movements to gradually recover and reducing fears of an immediate supply shock.
Oil prices have also erased nearly all the gains recorded after the outbreak of hostilities between the United States, Israel and Iran in late February. Brent and WTI are now trading close to the levels seen before the conflict began, reflecting a market that has largely removed the geopolitical risk premium from crude prices.
According to market data compiled by Bloomberg from the ICE Exchange, Brent crude is set to record a quarterly decline of about 30.4%, its worst performance since the pandemic-triggered collapse in early 2020, when global lockdowns crushed fuel demand and sent prices tumbling by more than 65% in a single quarter.
The recent sell-off has also been fuelled by expectations that crude exports from the Gulf will continue to normalise. Since the U.S. and Iran signed a memorandum of understanding in mid-June to pursue further peace negotiations, traders have increasingly priced in the likelihood of uninterrupted oil flows through the Strait of Hormuz.
However, analysts caution that the market may be underestimating the risks. While investor sentiment has improved, they warn that the security situation in the Middle East remains fragile, with renewed military exchanges over the weekend highlighting the potential for fresh disruptions to global energy supplies.
Warren Patterson, Head of Commodities Strategy at ING, said recent price movements suggest traders are treating the temporary truce between the United States and Iran as though it were a permanent settlement. He noted that with crude trading around $70 per barrel, the market is currently pricing in almost no geopolitical risk, despite continuing uncertainty across the region.
The sharp correction in oil prices is expected to remain a key factor for energy markets in the coming weeks, as traders closely monitor diplomatic developments, shipping activity through the Strait of Hormuz, global crude inventories and OPEC+ production policy for clearer direction on the next phase of the market.