Oil prices have fallen nearly 8 per cent in two trading days, retreating sharply from last week’s highs as markets increasingly price a lower risk of a major military escalation between the United States and Iran and growing prospects for improved navigation through the Strait of Hormuz.
As at 05:30am (WAT), Brent crude was trading at $86.44 per barrel, down 2.42 per cent, while West Texas Intermediate stood at $80.54, down 2.21 per cent. Brent closed last week at $94.39, meaning the benchmark has lost about $7.95 per barrel, or 8.4 per cent, within few days.
The reversal reflects a sharp unwinding of the geopolitical risk premium that had driven Brent towards $95 per barrel. After gaining 6.6 per cent last week to close at $94.39, Brent fell to $92.17 on Monday, down 2.4 per cent, then plunged another 3.9 per cent to $88.58 on Tuesday. As at the time of writing on Wednesday, Brent stood at $86.44, down 2.42 per cent, taking its three-session loss to $7.95, or 8.4 per cent. The slide reflects easing fears that the US-Iran confrontation would escalate and further disrupt oil flows through the Strait of Hormuz.
The reversal follows a significant change in the risk premium that had pushed crude towards $95 per barrel. Last week’s rally was driven largely by fears surrounding the unresolved Strait of Hormuz situation and the possibility that continued confrontation could further disrupt global oil flows.
That fear premium began to unwind on Monday after the United States announced a new round of economic sanctions against Iran instead of taking further immediate military action. The sanctions, unveiled by US Treasury Secretary Scott Bessent under the administration’s campaign against Iran’s economic network, were viewed by traders as less immediately threatening to physical oil supplies than a fresh military escalation.
The second major catalyst has come from Iran-Oman discussions over the management of the Strait of Hormuz. The two countries have been discussing a temporary navigational corridor and measures to clear mines from the waterway, raising hopes that commercial shipping could gradually become more predictable. The Strait handled about one-fifth of global oil and LNG shipments before the war, making any credible improvement in navigation conditions highly significant for crude pricing.
Importantly, the fall in crude prices has occurred even though the underlying supply risk has not disappeared. Hormuz has not simply returned to normal, tanker movements remain disrupted and a tanker incident near Oman has reinforced the security risks facing vessels in the region. What has changed is the market’s assessment of the probability and scale of a further escalation. Traders are therefore removing part of the geopolitical premium that had been built into crude rather than declaring the supply threat over.
For Nigeria’s downstream market, the decline in Brent is significant because international crude benchmarks remain an important reference point for replacement costs and import-parity pricing. However, lower crude prices do not translate immediately into equivalent reductions in domestic petrol prices. Dangote Refinery margins, product premiums, freight, insurance, financing, exchange rates and other landing-cost components determine what an importer or supplier ultimately pays for a barrel of refined product.
The immediate market signal is therefore one of risk repricing rather than a complete return to normality, while the next direction will remain closely tied to developments around US-Iran negotiations, the proposed Hormuz shipping corridor and the security of commercial vessels moving through the Gulf.