Oil prices rise, but nurse steep weekly loss as Israel-Iran tensions clear

Oil prices saw a modest rebound on Friday, supported by signs of resilient U.S. demand, Chinese stimulus optimism, and a weaker dollar. However, both Brent and WTI crude are nursing steep weekly losses exceeding 12%, primarily driven by the significant de-escalation of Middle East supply concerns following a ceasefire between Israel and Iran and the absence of Strait of Hormuz disruptions. Further downward pressure stems from the Trump administration's decision not to immediately refill the Strategic Petroleum Reserve, despite its historically low levels, indicating ample supply outlook.

Analysis

Oil prices are experiencing a marginal daily recovery after a precipitous weekly decline of over 12% for both Brent and WTI contracts. The primary driver for this significant sell-off is the material de-escalation of geopolitical tensions in the Middle East, following a U.S.-announced ceasefire between Israel and Iran that has held. This has unwound the supply risk premium previously priced into the market, a sentiment reinforced by Iran's decision not to disrupt the Strait of Hormuz. Further bearish pressure comes from a key policy signal: the Trump administration's statement that it has no immediate plans to refill the Strategic Petroleum Reserve (SPR), even with inventories at their lowest levels since the 1980s, suggesting confidence in current and future supply availability. The modest price uptick to $68.07 for Brent and $65.57 for WTI is supported by short-term fundamental and macroeconomic factors, including a sharp drawdown in U.S. crude stockpiles, optimism around potential Chinese stimulus, and a weaker U.S. dollar, which has fallen to a three-year low. The market's focus is now shifting from supply shocks to demand-side fundamentals and monetary policy cues, with upcoming U.S. PCE data being a key watchpoint for Federal Reserve rate expectations.

Key Decisions for Investors

• The primary investment thesis for oil must shift from geopolitical supply risk to macroeconomic demand drivers, as the significant war premium has largely evaporated following the Middle East ceasefire.
• Given the dominant bearish sentiment from de-escalation and the U.S. administration's decision not to refill the SPR, investors should exercise caution with long positions as near-term price upside appears limited.
• Traders should closely monitor upcoming U.S. PCE data, as its influence on the dollar and Federal Reserve policy is now a more critical catalyst for oil prices than the receding geopolitical risks.