Oil prices experienced a volatile trading session, paring earlier losses after former US President Donald Trump stated that America must respond to an incident involving a downed military helicopter, reigniting market fears of renewed conflict with Iran and a prolonged global energy crisis.
The global benchmark Brent crude fell 3%, settling above $91 per barrel, while West Texas Intermediate (WTI) also declined 3%, settling above $88 per barrel.
Trump's accusation that Iran shot down an Apache helicopter near Oman raised concerns over the stability of the fragile ceasefire and the prospects for peace negotiations with Tehran. The conflict, which began in late February, has triggered the largest oil supply disruption in history and fueled global inflation.
"This just goes to show we are not as close to a deal as headlines might suggest," said Ryan McKay, senior commodity strategist at TD Securities.
Nevertheless, Trump did not specify the form the response would take, and so far, despite multiple clashes between the warring parties and fighting between Israel and Iran, the ceasefire has held. Iran's foreign minister posted on social media that "foreign forces near our territory are always at risk."
These remarks disrupted an earlier steady decline in oil prices, which had been driven by increasing signs of a sharp drop in demand, offsetting supply losses from the effective closure of the Strait of Hormuz, a critical energy transit chokepoint.
A plunge in purchases by the world's largest crude importer, coupled with record US exports and releases from emergency stockpiles, has provided much-needed relief to global oil supplies. While prices remain well above pre-war levels, they are significantly lower than the highs reached in recent months.
There are also signs that shipping traffic through the Strait of Hormuz may be recovering. Kuwait's supply of crude to Asian refineries suggests flows through this key chokepoint are resuming.
However, even if an eventual agreement is reached, a full normalization of oil flows remains a distant prospect. This would require clearing mines from the Strait of Hormuz, potentially months to restart shuttered oil fields, and repairing damage to energy infrastructure from drone and missile attacks.
"Crude took us on another roller coaster ride today, a clear reminder not to trade on headlines," said Mark Malek, Chief Investment Officer at Muriel Siebert & Co. "Keep a box of Dramamine on your desk — this motion sickness is likely to continue."
The WTI July futures contract fell 3.4%, settling at $88.20 per barrel.
The Brent August contract settled 3% lower at $91.45 per barrel.
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