Oil plummeted over 11% in historic selloff as US de-escalation signals clash with ongoing physical disruptions

Oil prices suffered their steepest single-session collapse since 2022 on Tuesday, driven by an aggressive unwinding of the geopolitical risk premium after US President Donald Trump signalled a rapid de-escalation of the Middle East conflict.

Brent plunged $11.16, or 11.2%, to settle at $87.80 a barrel. US WTI plummeted $11.32, or 11.9%, to close at $83.45 a barrel, abruptly reversing the previous session's surge that briefly tested four-year highs above $119.

The sharp repricing followed coordinated cues from Washington. President Donald Trump described the military campaign as "very complete" after talks with the Kremlin, and the US Energy Department confirmed a US Navy tanker safely transited the Strait of Hormuz. The move temporarily eased fears of a prolonged maritime blockade, bolstered by domestic political considerations ahead of November midterms.

Policy signals added to the downside. Speculation over a potential easing of Russian oil sanctions, combined with discussions among G7 energy ministers on a coordinated Strategic Petroleum Reserve release, reinforced expectations that authorities could actively inject additional barrels to curb price spikes.

Yet the physical market remains constrained. Around 1.9 million barrels per day of Gulf refining capacity is offline, highlighted by a fresh drone strike on ADNOC’s Ruwais refinery and ongoing shipping bottlenecks flagged by Saudi Aramco. Analysts warn that restarting choked-off wells could take weeks even after a ceasefire, keeping supply tight despite political optimism.

Traders are thus navigating a volatile tug-of-war: bearish sentiment driven by policy and geopolitical signals versus entrenched logistical disruptions. The result is heightened short-term price swings and persistent uncertainty over how quickly supply chains can normalise.

Written by: Aiman Haikal