Oil prices rebound after 5% drop on U.S.-Iran pause

Crude oil prices swung violently this week as markets toggled between optimism over a pause in U.S.-Iran hostilities and concerns about tightening supplies, with Brent crude falling about 5% on Tuesday before rebounding more than 3% in early Wednesday trade.

Ceasefire Pause Triggers Sell-Off

Oil prices dropped roughly 5% on Tuesday to a two-week low after a pause in fighting between Washington and Tehran raised hopes for a diplomatic resolution to the conflict that has disrupted global crude flows, particularly through the Strait of Hormuz. Brent futures fell $4.27, or 4.8%, to settle at $84.09 a barrel, while U.S. West Texas Intermediate also declined sharply.cnbc+1

The sell-off followed President Trump's decision to call off a two-week U.S. bombing campaign over the weekend. Trump told Fox News ↗ 1.61% on Tuesday that there were "good talks" with Iran, though he threatened more strikes if negotiations break down. Iran has denied that it is seeking to resume talks with the United States.kelo

The Commonwealth Bank of Australia noted that the pause in hostilities "weakened expectations that the conflict will escalate to include significant attacks on civilian and energy infrastructure," but warned that disagreements over the Strait of Hormuz "could see hostilities reignite".cnbc

Rebound on Supply Tightness

Prices reversed course in early Wednesday trade. Brent futures rose $2.71, or 3.2%, to $86.80 a barrel, while WTI climbed $2.26, or 3.4%, to $81.95, according to Reuters. The rebound was driven by data from the American Petroleum Institute showing U.S. crude inventories fell by about 3.3 million barrels in the week ended July 24.kelo

The draw came after the API reported an unexpected build of 2.603 million barrels the prior week ending July 17, against analyst expectations of a 1.5 million-barrel decline. Official data from the Energy Information Administration was due later on Wednesday.engine+1

Broader Supply Picture

Further supporting the recovery, OPEC+ is likely to halt oil output increases for three months starting in October, sources told Reuters, after the group completes its scheduled return of barrels following voluntary cuts.kelo

Oman has also presented Iran with a plan to manage the Strait of Hormuz that would include collecting voluntary fees for using the passageway, according to a Gulf source and a Western diplomat cited by Reuters. The proposals, backed by Gulf states, aim to serve as a basis for ending trade disruptions through the strait.kelo

The volatile price action underscores how deeply the U.S.-Iran conflict has embedded itself in oil market dynamics, with traders caught between the prospect of diplomatic progress and the reality of ongoing supply risks in one of the world's most critical shipping lanes.