Oil sinks 11% below $90 as Trump discusses Middle East de-escalation

Oil prices fell more than $10 a barrel on Tuesday after reaching a near four-year high in the previous session after US President Donald Trump predicted the war in the Middle East could end soon, reducing expectations of a prolonged disruption in oil supplies.

Brent futures were down $10.45, or 10.6%, at $88.51 a barrel by 1504 GMT (11:04 am EDT), while U.S. West Texas Intermediate (WTI) crude was down $10.61, or 11.2%, at $84.16.

Oil rose above $119 a barrel on Monday to its highest level since mid-2022 on fears of a major disruption to global supply as Saudi Arabia and other producers cut supply.

Prices later retreated after a phone call between Trump and Russian President Vladimir Putin and proposals aimed at a quick settlement of the war, according to a Kremlin aide.

Trump said in an interview with CBS News on Monday that he thinks the war against Iran is “pretty much complete” and that Washington is “far ahead” of its initial four-to-five week estimated time frame.

“Clearly Trump’s comments about a short-lived war have calmed the markets. While there was an overreaction to the upside yesterday, we think there is an overreaction to the downside today,” said Suvaro Sarkar, energy sector team lead at DBS Bank.

Even if the war ends, oil supplies will not recover immediately, said Simon Flowers, chairman and chief analyst at Wood Mackenzie.

“When the conflict ends, cranking up the supply chain is not going to be fast,” Flowers said. “Barrels of production in storage at refineries or ports can be quickly moved onto ships. But if wells are shut down for long periods of time, it can take weeks or more to resume production at full output.”

In response to Trump, Iran’s Islamic Revolutionary Guard Corps said Tehran would not allow the export of “one liter of oil” from the region if US and Israeli attacks continued, state media reported on Tuesday.

Meanwhile, Trump is considering easing oil sanctions on Russia and releasing emergency crude stockpiles to help curb soaring prices, according to multiple sources.

“Discussions about easing sanctions on Russian oil, Donald Trump’s comments indicating that the conflict may eventually escalate, and the possibility that G7 countries will tap strategic oil reserves all point to the same message – that barrels of oil will somehow continue to reach the market,” said Priyanka Sachdeva, not in Philip.

G7 energy ministers stopped short of deciding on giving up strategic oil reserves in a call on Tuesday.

Saudi Arabia’s Aramco, the world’s top oil exporter, said on Tuesday there would be “catastrophic consequences” for world oil markets if the Iran war continues to disrupt shipping in the Strait of Hormuz.

The policy measures may have limited impact on oil prices until safe passage through the Strait of Hormuz is assured, given potential losses of up to 12 million bpd over the next two weeks, JP Morgan said in a note.

In the latest disruption to global supplies, Abu Dhabi state oil giant ADNOC has shut down its Ruwais refinery, a source said on Tuesday, after a fire broke out at a facility inside the complex after a drone strike.

Goldman Sachs said it was not changing its fourth-quarter oil price forecast for Brent at $66 a barrel and WTI at $62 a barrel, as the situation remains fluid.