Oil prices have fallen to their lowest levels since before the Iran war began, with Brent crude futures now trading near $78 per barrel as of Wednesday, June 18, 2026, effectively erasing all the risk premiums gained during the war period from March 2026. The sharp fall in oil prices has improved sentiment for major oil-importing nations, as it alleviated tensions from higher oil prices for a longer period. Brent touched its lowest level since February 27, the last day of trading before the initial U.S.-Israeli strikes on Iran, while WTI was at its lowest since March 4. As reported by The Economic Times, this represents a dramatic unwinding of the war premium that had driven crude prices to nearly $117 per barrel during the conflict. The more actively traded August WTI contract was also lower, falling 30 cents to $75.55 per barrel during the initial sell-off, with the potential reopening of the Strait of Hormuz removes the big risk premium that had been baked into crude from the disrupted 20% of global oil flows. Cooling risk premiums have been the primary driver of this correction, as markets had earlier priced in worst-case scenarios including prolonged conflict and potential blockage of critical energy trade routes.
The reopening of the Strait of Hormuz following a peace agreement between the United States and Iran has injected fresh optimism into global oil markets, sending crude prices lower on Friday. A major trigger for the sell-off was the movement of several oil tankers through the Strait of Hormuz just hours after the presidents of Iran and the United States signed an interim agreement aimed at ending the conflict. Among the vessels reported to have passed through the waterway were three Saudi-flagged tankers carrying a combined six million barrels of crude oil. The Strait of Hormuz remains one of the world's most strategically important maritime routes, with prior to the conflict, roughly one-fifth of global oil and liquefied natural gas trade passed through the narrow channel. With shipping activity gradually resuming, industry reports suggest that shipping traffic in the Strait of Hormuz could rise to 12.1 million bpd in June, as compared to 9.6 million bpd in May, as reported by Upstox. The deal is not yet fully finalized, leaving room for uncertainty, and any breakdown in talks or violation of terms could quickly reignite tensions, as noted by The Economic Times.
Market participants are closely watching the potential supply impact of the agreement, with analysts estimating that more than 85 million barrels of oil currently stranded across the Gulf region could eventually return to international markets. The deal also includes the removal of US sanctions on Iranian oil exports, a move expected to further increase available supply. Oil producers across the region have begun signalling a return to business as usual, with Kuwait Petroleum Corporation announcing that it had lifted all force majeure notices issued during the conflict with immediate effect. Meanwhile, Iraq's Oil Minister Basim Mohammed said the country's oilfields are prepared to restore production gradually and return output to previous levels. These developments have reinforced expectations that supply disruptions could ease if regional stability improves.
Crude oil prices nearly doubled in 2026 after the war broke out in early March, with the prices remaining elevated throughout Q1 of FY27, resulting in higher inflation levels across economies. Industrial demand for petrochemicals and jet fuels also remains subdued owing to the elevated prices and supply shocks caused by the Middle East crisis. The IEA (International Energy Agency) significantly downgraded the 2026 demand growth outlook to 700,000 barrels per day as compared to its previous month's outlook, as reported by Upstox. In its latest energy outlook, the IEA projected that the total oil supplies will increase by 8 million barrels per day to 110 million barrels per day, coming in sharp contrast to its May outlook where it projected the overall oil market to remain in deficit throughout the year. The transition from a deficit market scenario to an increasing supply outlook signals more supply pressures on crude oil prices than supply shocks. If competition among exporters intensifies, it could even lead to a price war, further pushing prices down and deepening the risk of a supply glut.
Fitch Ratings anticipates the global oil market to return to oversupply in about a month if the Strait is fully operational, with oil prices expected to average around $87 per barrel for the entire 2026 and $70 for Q4 2026. The ratings agency expects a rapid recovery in the Middle East production, supported by strong non-OPEC supply and a potential increase in OPEC output could put downward pressure on oil prices, despite a residual risk premium. The erosion in risk premium suggests that oil traders expect the physical market to be equipped with excess supply, adding pressure to the crude oil prices. Looking ahead, crude oil prices are likely to remain highly sensitive to geopolitical developments. If the ceasefire is successfully implemented and the Strait of Hormuz operates without disruptions, the market could face sustained downward pressure, with increased supply—combined with the release of delayed cargoes—could push prices even below $50 per barrel. However, the upside risks cannot be ignored, as any breakdown in the deal, renewed hostilities, or disruptions in shipping routes could quickly reverse the trend, leading to sharp price spikes once again.
