Oil prices cratered more than 4% on Friday, driven by mounting expectations that the U.S. and Iran are closing in on a peace deal. Brent crude slid 4.34% to $86.36 per barrel, while WTI crude dropped 4.47% to $83.88, extending losses from Thursday after President Trump reportedly called off a strike on Iran and signaled a breakthrough.
The selloff wiped out much of the geopolitical risk premium that had built up in recent weeks. July WTI futures settled near $85.93 on Thursday, down $4.32, or 4.79%, from the prior week's close. Trading had ranged between a high of $95.47 and a low of $85.13 through June 11, reflecting extreme volatility tied to shifting expectations around U.S. policy.
Supply concerns that had pushed prices above $95 per barrel have rapidly dissipated as traders bet on a diplomatic resolution. Markets are now pricing in the possibility that Iranian crude could return to global markets, adding to an already well-supplied environment. The sudden collapse of the risk premium represents one of the most dramatic price swings this quarter.
A deal with Iran would reshape Middle Eastern energy dynamics, potentially removing a key source of supply disruption risk. The Strait of Hormuz, through which about 20% of global oil passes, had been a focal point for fears of a blockade. Diplomacy, if realized, would dramatically reduce the likelihood of a conflict that could threaten regional production and export routes.
Yet a counterargument persists: talks remain fragile, and previous rounds of optimism have collapsed without a final agreement. If negotiations stall, the geopolitical premium could snap back just as quickly as it evaporated, catching bearish traders off guard.