Oil Falls Below $75 Since Iran War Start

Crude oil prices are tumbling sharply this week as a US-Iran peace agreement moves to reopen the Strait of Hormuz, sending the United States Oil Fund (AMEX:USO) down more than 4% on the day and near its 52-week low. The relief rally in geopolitics has flipped into a sell-off for energy markets.

At a Glance

• USO fell 4.07% to $106.72, just above its 52-week low of $105.65 and deep in oversold territory with an RSI of 27.55.
• Brent crude slid roughly 4.4% on Wednesday, breaking below $74 per barrel for the first time since the Iran conflict began.
• WTI crude traded near $71 per barrel on a comparable decline.
• Brent has now shed about 27% over the past month as peace negotiations gathered momentum.
• JPMorgan cut its Brent price targets for the third and fourth quarters to $86 and $80 per barrel, respectively.

What the Peace Agreement Actually Changed

Last week, the United States and Iran signed a memorandum of understanding to end their conflict and reopen the Strait of Hormuz. The MOU calls for freedom of navigation for oil tankers and other vessels that had been trapped on either side of the critical waterway, with both governments pledging safe passage. That single development explains most of what you are seeing in crude prices right now.

The Strait of Hormuz is the chokepoint through which roughly a fifth of the world's seaborne oil flows. When it closed, the disruption rippled through every major benchmark. Now that it is theoretically open again, the war premium that had propped up Brent and WTI is unwinding fast.

Not everyone is rushing back in, though. Several large shipping lines are choosing to wait and watch before resuming transits, according to freight analysts. They want to see whether the tentative agreement holds before sending vessels back through waters that were off-limits just weeks ago.

Supply Picture: Depleted Reserves and a Tight Storage Hub

The drop in prices does not mean the supply side is clean. Two problems are stacking up beneath the surface.

First, the Cushing, Oklahoma, storage terminal, which is the physical delivery point for WTI futures contracts, is running lean. Volumes there have fallen to around 19 million barrels, slipping below 20 million for the first time since the Permian Basin production boom of the mid-2010s. Robert Yawger, Mizuho's director of energy futures, put it plainly: if a trader holds a WTI contract to expiration, they are entitled to 1,000 barrels delivered from Cushing. "If the tanks run dry, that is going to be tough to perform on," he said Wednesday.

Second, OECD countries burned through strategic reserves during the conflict to keep consumer prices from spiraling. That worked in the short term, but it means global storage levels are considerably lower than they were before the war started. Any hiccup in the flow of physical crude could push prices back up before the global supply chain can get up to speed again.

Banks and the IEA Shift Their Forecasts

The International Energy Agency, which had projected a balanced market earlier this year, now expects a surplus in 2027. That shift in outlook is giving major banks cover to lower their price targets. JPMorgan's Natasha Kaneva told clients this week that while the oil shock broadly played out as the bank had modeled, the rebalancing came through a different mix of demand destruction and inventory drawdowns than originally assumed.

JPMorgan's revised Brent targets, $86 for the third quarter and $80 for the fourth quarter, still sit above where the market is trading today. That gap tells you something: the bank sees prices recovering somewhat from current levels as physical flows normalize, but the days of triple-digit Brent are not part of the base case right now.

Geopolitical Risk Has Not Left the Building

The MOU is a start, not a finish. Iran's parliamentary speaker Mohammad Bagher Ghalibaf said this week that any lasting ceasefire must include Lebanon, a condition Israel has rejected. That political friction sits in the background of every oil trade being placed right now.

Jorge León, head of geopolitical analysis at Rystad Energy, framed the core risk precisely. Iran does not necessarily want a permanent closure of the Strait, he argued, but it could use the waterway as a pressure point again if it believes its negotiating position is eroding or if it concludes the US and Israel have not honored their commitments. "Even if physical traffic recovers," León noted, "the market may still price in the possibility of renewed disruption."

That embedded uncertainty is part of why USO's RSI has collapsed to 27.55, a level that signals extreme selling pressure. The market is pricing in relief today, but it has not forgotten what the past month looked like.

Frequently Asked Questions

Why did crude oil prices fall so sharply this week?

The US and Iran signed a memorandum of understanding last week that calls for reopening the Strait of Hormuz. That removed the war premium that had supported oil prices during the conflict, triggering a roughly 4.4% single-day drop in both Brent and WTI benchmarks.

What is USO and how does it track crude oil?

USO is the United States Oil Fund, an exchange-traded fund that holds crude oil futures contracts. Its price moves broadly in line with WTI crude, making it a widely used proxy for oil market exposure on US stock exchanges.

Why does Cushing, Oklahoma, matter for oil prices?

Cushing is the designated delivery point for WTI futures contracts. When storage volumes there fall, it creates physical delivery risk for traders holding contracts to expiration, which can amplify price volatility regardless of global supply conditions.

Could oil prices rise again even after the peace agreement?

Analysts at Rystad Energy point out that Iran could use the Strait of Hormuz as a negotiating tool again if the broader deal breaks down. Depleted strategic reserves in OECD countries also leave the market with less cushion against any new supply shock.

What to Watch in the Weeks Ahead

The real test comes as shipowners decide whether to resume Hormuz transits in volume. Physical cargo flows, Cushing inventory data, and any diplomatic signals from ongoing US-Iran negotiations will drive the next meaningful move in crude. With USO sitting just above its 52-week low and RSI deeply oversold, the market is clearly pricing in a lot of good news already.