• Oil futures tumbled more than $3 a barrel on Friday as news emerged that Iran and Israel have paused hostilities, easing fears of an immediate supply disruption.
  • WTI crude fell 3.8% to settle at $78.45 a barrel, while Brent crude dropped 3.6% to $82.90 a barrel, erasing a significant portion of the risk premium built up in recent weeks.
  • Traders are now eyeing whether the halt holds and how global demand and inventories will shape prices in the near term.

Crude prices extended their losses in volatile trading after reports indicated that Iran and Israel have halted direct attacks, reducing the immediate threat to oil supplies from the Middle East. The move marks a sharp reversal from earlier this week, when prices spiked on fears of a broader conflict that could disrupt shipments through the Strait of Hormuz.

"The market had priced in a significant geopolitical risk premium, and now that is being unwound," said a senior energy trader at a New York-based hedge fund. "But this is still fragile—any escalation could reverse the move quickly."

WTI crude for June delivery fell $3.15, or 3.8%, to $78.45 a barrel on the New York Mercantile Exchange, the lowest in a month. Brent crude for July settlement dropped $3.05, or 3.6%, to $82.90 a barrel on ICE Futures Europe. Both benchmarks are still up about 10% year-to-date.

The halt follows weeks of heightened tensions, including airstrikes and retaliatory attacks, which had threatened to disrupt oil production and transit in the region. Iran's oil exports, which have been largely under sanctions, were not directly affected, but the risk of wider conflict had spooked the market.

Analysts caution that the underlying geopolitical tensions remain unresolved. "This is a pause, not a permanent de-escalation," said Helima Croft, global head of commodity strategy at RBC Capital Markets. "We need to see sustained diplomatic progress before the risk premium fully evaporates."

Investors are also watching for signals from OPEC+, which is set to meet in early June to discuss production levels. Some members have privately indicated they may extend voluntary cuts if demand weakens, sources told Reuters.

On the demand side, U.S. gasoline futures also fell, reflecting concerns about economic growth and interest rates. The Energy Information Administration reported a smaller-than-expected draw in crude inventories last week, further weighing on sentiment.

Correction: A previous version of this article incorrectly stated the settlement price for WTI. It has been corrected to $78.45 a barrel.