Oil prices tumbled for a second day Tuesday, as the market bet that a ceasefire between Israel and Iran would hold and the risk of a major crude supply disruption had faded.
U.S. crude oil settled down 6% at $64.37 a barrel, while the global benchmark Brent fell 6.1%, to $67.14. Prices closed 7% lower on Monday as the oil market bet that the conflict in the Middle East was winding down.
Earlier, President Donald Trump said China can keep buying oil from Iran, in what seemed like a sign that the U.S. may soften its maximum pressure campaign against the Islamic Republic.
“China can now continue to purchase Oil from Iran,” Trump said in a social media post. “Hopefully, they will be purchasing plenty from the U.S., also. It was my Great Honor to make this happen!”
But a senior White House official told CNBC that Trump “continues to call on China and all countries to import our state-of-the-art oil rather than import Iranian oil in violation of U.S. sanctions.”
Trump threatened in May to bar any country that buys Iranian oil from doing business with the U.S. China purchases the vast majority of the 1.7 million barrels per day (bpd) that Iran typically exports, according to data from Kpler.
Trump was saying that China could continue buying Iran’s oil because the Strait of Hormuz would remain open due to the ceasefire, the White House official clarified. The strait is a narrow waterway between Iran and Oman that is used to transport 20% of the world’s oil. Investors worried that Iran might attempt to close the strait during the conflict with Israel.
Oil back at pre-conflict levels
Oil prices have tumbled to levels last seen before Israel started bombing Iran on June 13, as investors now believe the risk is low that a major supply disruption will occur in the Middle East.
The U.S. decision to join Israel’s campaign and bomb three key nuclear sites in Iran over the weekend initially triggered fears that Tehran might try to choke off oil exports from the Persian Gulf in retaliation.
Instead, Tehran launched a missile attack on a U.S. airbase in Qatar that left no casualties, providing an off-ramp from further escalation. Trump announced a ceasefire agreement between Israel and Iran shortly afterward.
The ceasefire teetered on the brink of collapse early Tuesday as Trump accused both Iran and Israel of violating the agreement shortly after it went into effect. The president demanded that Jerusalem and Tehran adhere to the agreement, reserving unusually harsh words for Israel.
“I’m not happy with Israel,” Trump told reporters en route to a NATO summit in the Netherlands. “I’m not happy with Iran either but I’m really unhappy if Israel” continues its bombing campaign Tuesday.
Since then, Israel has lifted war-related restrictions that prevented large public gatherings and shuttered schools and some businesses across the country.
Throughout the conflict, traders feared that Israel might target the 3.3 million bpd of crude oil that Iran produces, or that the Islamic Republic might lash out by targeting energy infrastructure in the Gulf nations, including Iraq.
