Crude Oil Meltdown: 3 reasons why prices crashed 13% below $100 in biggest 1-day drop since 2020

This is the first time crude oil prices are below the crucial $100/bbl mark this week. Prices had surged to 4-year highs after the escalation of violence in West Asia.

3 reasons why oil prices have fallen 13% today

Here are three reasons over what caused the retreat for oil prices:

1. US-Iran declare a two-week ceasefire; Strait of Hormuz opened 

Oil prices slipped below the $100/bbl mark and saw some relief on Wednesday after US President Donald Trump agreed to a two-week ceasefire with Iran. The US President said he would suspend attacks on Tehran in exchange for the immediate and safe reopening of the crucial trade route—the Strait of Hormuz.

US crude futures, West Texas Intermediate (WTI) May contract, slipped by 19%, falling to a low of $91/bbl, marking its biggest intraday decline since 2020, while Brent crude futures for June slipped to an intraday low of $93/bbl.

What did Trump say?

The US President, in a social media statement on Truth Social, said that he had received Iran’s 10-point plan and believed it was a workable basis to negotiate. He added that both countries were very far along in reaching a definitive agreement concerning a long-term peace plan.

In his statement, Trump remarked that this time frame would allow the agreement to be finalised and consummated.

2. Iran agrees to allow safe transit through Strait of Hormuz

The sharp fall came as Iranian Foreign Minister, Abbas Araghchi, in a social media post on X, said that for two weeks, safe passage through the Hormuz route will be possible via coordination with Iran’s armed forces and with “due consideration of technical limitations.”

Araghchi did not explain the technical limitations, but oil markets were quick to react to his statement, as the Strait of Hormuz is a crucial waterway passage—which transits nearly 20% of the world’s global energy flows.

The announcement came less than two hours before the US President’s self-imposed deadline to Tehran, in which he had threatened to bomb the country’s civilian infrastructure.

3. Dollar index climbs down

Following the ceasefire announcement, the dollar index, which measures the strength of greenback against a basket of six major currencies, climbed down from its record high levels. The index was down nearly 0.6% on-day quoted near the ends of the 98-mark. 

A potential relief over tensions in Middle East would also likely ease inflationary concerns 

Physical Oil prices to stay elevated in near term 

“The physical system won’t snap back quickly,” Bloomberg quoted Robert Rennie, head of commodity research at Westpac Banking Corp, as saying. “Restarting shut-in wells, repositioning crews and vessels, and rebuilding refinery inventories will take months,” he added.

The closure of the waterway passage had caused turmoil within the energy markets, as oil prices continued to remain at elevated levels. US crude futures are up nearly 40% since the start of the West Asia crisis.

As per US government projections, the reduced shipments have tightened the supply, with more than 9 million barrels per day of oil output from key Middle Eastern producers shut in during April.