Crude oil prices retreated sharply on Thursday, erasing the gains accumulated over the previous week as investors reassessed the trajectory of Middle East hostilities.
The selloff came after reports indicated that former U.S. President Donald Trump signaled reluctance to resume full-scale military action against Iran, cooling the geopolitical risk premium that had built up amid fears of Strait of Hormuz disruptions.
Despite the immediate pullback, market strategists warn that downside risks remain elevated.
Axios reports that oil prices could face further pressure if shipping insurance rates in the Strait of Hormuz normalize quickly, effectively removing the conflict premium from crude valuations.
Additionally, any signs of sustained demand weakness in key consuming regions or unexpected inventory builds could accelerate the selloff.
Traders are now shifting focus from escalation scenarios to fundamental supply-demand imbalances, with Brent and WTI futures likely to test lower support levels if the de-escalation narrative holds through the trading week.