Despite Ceasefire, Market Concerns Remains

After yesterday’s massive selloff, oil prices are beginning to rebound. The fragile ceasefire between the U.S. and Iran has yet to restore confidence in global energy flows. Despite the announcement of a two-week truce, renewed military activity across the region and limited shipping activity have kept supply risks elevated. US crude is trading near $99/bbl, up nearly $5 on the day, while Brent crude has climbed above $98/bbl, reversing part of the sharp selloff seen earlier in the week.

The initial market reaction to the ceasefire drove prices sharply lower, with WTI recording its largest single-day decline since 2020. However, expectations for the Strait reopening have not materialized. Shipping activity remains constrained, with only a handful of vessels transiting the waterway in the past 24 hours, far below the typical daily volume of roughly 140 vessels. Iran has also signaled that vessel movements will remain tightly controlled, further limiting throughput and delaying any meaningful recovery in flows.

At the same time, the conflict is broadening outside Iran. Israel has intensified strikes against Hezbollah in Lebanon, targeting military infrastructure and command centers. These developments are raising concerns that the ceasefire may not hold across the wider region, increasing the likelihood of prolonged instability. Ongoing attacks across the Gulf, including strikes on pipelines and energy infrastructure, are reinforcing fears that supply disruptions could extend well beyond the current truce.

A growing disconnect is also emerging between futures markets and physical crude pricing. While benchmark futures briefly dropped below $100/bbl earlier this week, physical crude markets in Europe and Africa have moved higher, with some grades reaching record premiums. This divergence reflects strong demand for non-Middle East barrels as refiners seek alternative supply sources, signaling that real-world supply constraints remain firmly in place.

Refined product markets are also showing significant volatility. Gasoline opened today at $3.0280/gal after closing yesterday at $3.0059, down sharply from the previous day’s open of $3.2001. Diesel prices have moved even more aggressively, opening today at $3.8893/gal after closing yesterday at $3.8084, compared to an open of $4.2831 the day prior.

Even if flows through the Strait begin to recover, normalization is expected to take time. Ongoing security risks, including mined waters and heightened military presence, are likely to keep freight and insurance costs elevated. As a result, energy markets continue to price in prolonged disruption, with the path to stabilization dependent not just on ceasefire agreements, but on sustained improvements in physical supply conditions.