Crude oil plummeted nearly 20% during trading, as expectations of U.S. escort and G7 intervention impacted oil prices, but the supply crisis is far from resolved

The international crude oil market experienced one of the most volatile trading sessions on record this week. After a sharp rise of about 30% during Monday's trading, it quickly reversed, falling by nearly 10% at one point, with the decline further expanding on Tuesday. During the U.S. stock market's midday session, U.S. WTI crude oil fell below the $80 mark to below $76.80, with an intraday drop of 19%. Brent crude oil briefly fell below $81.20, with an intraday decline of about 18%, both far from Monday's intraday high of nearly $120 per barrel, a pullback that left the market astonished. The core driving force behind this round of sharp declines comes from intensive policy statements. On Monday, Trump hinted that the war with Iran might "end soon," then expressed a willingness to dialogue with Iran and announced plans to exempt certain oil-related sanctions, as well as dispatching the navy to escort tankers through the Strait of Hormuz. At the same time, International Energy Agency (IEA) Director Birol announced a "special meeting" on Tuesday to assess the current oil supply security situation. On the same day, G7 energy ministers met in Paris to discuss the feasibility of coordinating the release of emergency oil reserves. These signals collectively pressured oil prices, leading the market to bet that the worst supply shocks might be mitigated by policy interventions. By Tuesday's midday session in the U.S. stock market, media reports indicated that the IEA concluded its meeting without reaching a consensus decision on coordinating the release of strategic oil reserves. Some commentators noted that another factor contributing to the sharp drop in oil prices on Tuesday was the U.S. Navy escorting a tanker through the Strait of Hormuz, which the White House confirmed to some extent. According to CCTV News, U.S. Energy Secretary Granholm posted on social media that the U.S. Navy successfully escorted a tanker through the Strait of Hormuz to ensure the continuous flow of oil to global markets. However, the post was deleted shortly thereafter. Sources indicated that the U.S. Navy had not provided escort for tankers in the Strait of Hormuz. CCTV mentioned that the commander of the Iranian Islamic Revolutionary Guard Corps Navy responded to the U.S. Energy Secretary's statement, saying, "The claim that the U.S. military escorted tankers through the Strait of Hormuz is purely a lie. Any actions by the U.S. and its allies will be blocked within the range of Iranian missiles and drones." White House Press Secretary Levitt later stated that she could confirm that the U.S. Navy had not yet provided escort in the strait, noting that escorting was an option that Trump had mentioned might be used if necessary. Although more and more signals indicate that the U.S. and other G7 countries are preparing to take action to suppress rising crude oil prices, the impact on the physical supply side has not dissipated. Since the military actions by the U.S. and Israel against Iran on February 28, tanker traffic through the Strait of Hormuz has nearly come to a standstill, with Saudi Arabia, Iraq, the UAE, and Kuwait collectively cutting production by as much as 6.7 million barrels per day, effectively paralyzing the world's most important energy corridor. According to Rapidan Energy analysis, the supply disruptions caused by the Iran war are the largest in the history of oil Since the beginning of this year, the cumulative increase in oil prices has exceeded 50%. Record Volatility on Monday: 30% Increase and 10% Decrease on the Same Day The volatility in the oil market this week has surpassed historical precedents. On Monday morning in Asia, WTI crude oil surged over 30% to nearly $120 per barrel, while Brent crude oil rose nearly 29%, both reaching their highest levels since mid-2022. However, after U.S. President Trump stated to the media that the conflict with Iran might "end soon," oil prices rapidly reversed. By the end of trading on Tuesday, WTI fell below $81.20, down over 10% from last Friday's close, while Brent dropped below $84, with a decline close to 10%. Market data shows that Brent crude reached a daily high of $119.50 and a low of $83.66 on Monday, marking the largest single-day fluctuation on record. The indicator reflecting oil market volatility approached its highest level since 2020 that day. Vikas Dwivedi, an oil and gas strategist at Macquarie Group, characterized Monday's market as "a crazy day," stating, "Even by the usual standards of volatility in the oil market, this is unprecedented." The flow of funds in the options market is believed to have further amplified price fluctuations. Notably, WTI futures triggered a circuit breaker just two minutes after opening on Tuesday, leading to a brief trading halt—similar to what occurred on March 2, the first trading day after the outbreak of the U.S.-Iran conflict. Expectations of Policy Intervention Drive Sell-Off: Reserve Release and Ceasefire Signals The key to lowering oil prices lies in the market's rapid pricing of policy intervention expectations. Trump stated to the media on Tuesday that he is considering waiving oil-related sanctions and is willing to engage in dialogue with Iran. He also revealed that he discussed plans for escorting tankers through the Strait of Hormuz with Russian President Putin during a call on Monday, although he did not disclose specific details. Meanwhile, the IEA announced a special meeting, with reports indicating that IEA member countries hold approximately 1.2 billion barrels of emergency oil reserves. G7 countries have requested the IEA to prepare scenarios for releasing emergency reserves. According to an analyst team led by Andrew Tyler, head of U.S. market intelligence at JP Morgan, the current respite for risk assets stems from two clues: one is the preliminary downgrade signals from the White House, and the other is that the G7 is discussing the release of 300 to 400 million barrels of oil reserves into the market. Jim Reid, head of global macroeconomic research and thematic strategy at Deutsche Bank, stated that investors will be "closely watching" whether exports through the Strait of Hormuz can recover from their current near-halt, especially after Saudi Arabia joined the UAE and Kuwait in further cutting production on Monday. "We will also observe whether the plans to release oil reserves can truly materialize," he added. According to information cited by analysts at Deutsche Bank, options being considered by Trump also include suspending the federal gasoline tax and U.S. Treasury intervention in the crude oil futures market. Unprecedented Supply Disruptions: Hormuz Blockade Devastates Middle Eastern Oil Landscape Although policy expectations have temporarily lowered oil prices, the real-world supply shocks remain severe. The Strait of Hormuz is the most important oil transport corridor in the world, with Kpler data indicating that approximately 13 million barrels per day will be transported through it by 2025, accounting for about 31% of the total global maritime oil volume Since the outbreak of the war, several oil tankers have been attacked, and most shipowners have proactively avoided the waterway, causing traffic to plummet to a trickle. Amin Nasser, CEO of Saudi Aramco, warned on Tuesday that this war will have "catastrophic consequences" for the market, stating, "While we have experienced supply disruptions in the past, this is the biggest crisis the oil and gas industry in the region has faced to date." Nasser indicated that Saudi Aramco is accelerating the use of the west coast route to transport oil, with its east-west pipeline, which has a daily capacity of 7 million barrels, "expected to reach full capacity within a few days." Media reports state that Saudi crude oil exports have been rerouted to the Red Sea, with at least 25 very large crude carriers heading to the Saudi Red Sea port of Yanbu. Data from Kpler and tanker tracking compiled by the media show that the export volume at Yanbu's terminal has surged to about 1.6 million barrels per day so far this month, significantly higher than the average level of 1.1 million barrels per day in recent months. Additionally, the UAE's largest refinery has suspended operations as a precautionary measure following a drone attack nearby. Bob McNally, president of Rapidan Energy, stated that the market is currently betting that this situation cannot last too long, but he warned against underestimating the scale of the impact. He said, "For decades, traders have assumed that no country would be allowed to block the strait. The fact that this is happening is 'utterly catastrophic and completely unexpected.'" Market Divergence: Optimism and Uncertainty Coexist The current oil price trend reflects the market's bet on two entirely different scenarios. Goldman Sachs estimates that if exports from the Persian Gulf decrease by 15 million barrels per day and continue for 30 days, Brent crude could fall to $72 to $76 per barrel; if a similar scale of disruption lasts for 60 days, oil prices could stabilize in the range of $89 to $93 per barrel—still well above pre-war levels. Thu Lan Nguyen, head of commodity and foreign exchange research at Deutsche Bank, stated, "It all depends on how the situation with Iran evolves. If the war ends within the next two weeks, I expect oil prices to fall further." However, the prospects for a ceasefire remain highly uncertain. On Tuesday, Trump also stated that he "will not back down until the enemy is completely and decisively defeated." According to Xinhua News Agency, U.S. Defense Secretary Lloyd Austin claimed at a Pentagon press conference that the day would be the "highest intensity" strike day of the military operation, utilizing the maximum number of fighter jets and bombers to strike Iranian targets based on "more precise and higher quality" intelligence than ever before. Andy Lipow, president of Lipow Oil Associates, took a cautious stance: "We need to observe how Iran responds to President Trump's remarks and whether Iran will attack any oil infrastructure in the coming hours." Kenny Zhu, a research analyst at Global X, pointed out, "The Iran conflict remains a dynamically evolving event, and there are currently no clear signs of an end," leaving the timing and manner of the resolution of the disruption in the Strait of Hormuz still undecided