The market reacted nervously to U.S. President Trump’s decision on Saturday to back Israel in a coordinated strike on Iran’s nuclear facilities, dramatically reshaping the geopolitical landscape and swiftly eliminating the supply risk premium that had built up over the preceding 12 days.
In Saxo Bank’s recent commodities report, Ole Hansen, Head of Commodity Strategy, noted that the first turning point came late Monday when Iran, instead of targeting oil infrastructure or shipping lanes, opted for a carefully calibrated and largely symbolic response.
Tehran, reportedly in coordination with Qatari officials, launched a missile strike on a U.S. military base in Qatar, giving prior warning to minimize casualties. The market interpreted the move as a face-saving measure aimed at de-escalation rather than further escalation.
A few hours later, Israel confirmed it had agreed to a U.S.-brokered ceasefire with Iran. The Israeli Prime Minister’s office declared that “all of the objectives” of the military campaign had been achieved, while Iran reiterated its willingness to halt further action provided Israeli attacks ceased, effectively signaling a mutual climbdown, he added further in the report.
The geopolitical risk premium, at one point exceeding $10 per barrel on Monday, was unlikely to be sustained in the absence of actual supply disruptions: “This is especially true given macro headwinds tied to the ongoing U.S.–China trade war, and an outlook for ample supply into the autumn and winter months following recent output target increases from OPEC+.”
Technical rejection near $82.50 in early Monday trading set the stage for a sharp reversal. Brent crude subsequently posted its biggest one-day drop since July 2022, plunging by nearly $14 from top to bottom to retrace the entire risk-driven rally sparked by the initial Israeli strikes on Iran 12 days ago.
Looking ahead, the near-term outlook suggests continued volatility with news from Israel and Iran a continued focus. To note, Ole Hansen shared that despite the ceasefire agreement, there are reports about missiles launched at Northern Israel and that the IDF has been instructed to respond forcefully with attacks on Tehran.
The recent volatility has burned both shorts and longs, and positioning across futures and options markets is likely to remain cautious, with limited appetite for large positions at this stage, and with the seasonal summer lull approaching, it may take until late August before conviction returns and positioning normalizes.
