• U.S. crude futures settled at $86.85 a barrel, down $3.98 or 4.38%, as traders priced in a lower risk of further U.S.–Iran escalation.
  • President Trump's comments that renewed strikes on Iran were "highly unlikely" while negotiations continued sparked the sell-off.
  • Despite the drop, attacks near the Strait of Hormuz keep supply risks elevated, leaving markets on edge.

A Sharp Retreat

U.S. crude oil futures tumbled on Thursday, with the front-month contract settling at $86.85 a barrel, down $3.98 or 4.38%, as traders reacted to signs of easing tensions between Washington and Tehran. The decline marks one of the steepest single-day drops in recent months, according to market participants.

The sell-off was triggered by President Donald Trump's remarks that fresh U.S. attacks on Iran were "highly unlikely" while diplomatic talks progressed. The comments reduced the geopolitical premium that had been baked into oil prices amid fears of a wider conflict disrupting Middle Eastern supplies.

"The market is repricing the risk of a supply shock," said one trader, who spoke on condition of anonymity. "But the situation on the ground remains fluid."

Supply and Demand Dynamics

Adding to the downward pressure, Reuters (NASDAQ:TRI) reported that JPMorgan (NYSE:JPM) estimated global oil supply had outpaced demand by 1.1 million barrels a day in September and 1.4 million in October, citing recovering Middle Eastern flows, additional production elsewhere, and weak demand. Those analyst estimates, if sustained, point to a growing surplus that could weigh on prices in the coming months.

However, physical risks persist. Attacks near the Strait of Hormuz have continued, keeping tanker traffic and insurance costs elevated. The gap between diplomatic optimism and actual supply security remains wide, and any escalation could quickly reverse the recent price decline.

OPEC+ in Focus

The price move comes ahead of a key OPEC+ meeting scheduled for November 29, where members will discuss production levels for 2027. On November 1, several producers, including Saudi Arabia and Russia, agreed to maintain September 2026 required production levels for December, according to OPEC's official statement.

Yet production targets often diverge from delivered supply. Bloomberg reported that Persian Gulf members remained constrained in using higher quotas despite an October improvement in shipments through Hormuz and an alternative Saudi route via the Red Sea. Consequently, restored export access may matter more immediately than changes in announced quotas.

Analyst Divide

Analysts are split on the outlook. JPMorgan's surplus estimates support a weaker-price scenario, while Goldman Sachs (NYSE:GS) reportedly raised its December forecasts to $105 for Brent and $94 for WTI, and outlined a conditional scenario in which Brent could reach $140 in 2027 if Gulf production remained substantially depressed. The $140 figure is a supply-disruption scenario, not a consensus forecast.

"The market is caught between easing geopolitical fears and the reality of still-tight physical supplies," said an energy analyst at a major brokerage. "Until we see sustained normalization of tanker traffic, volatility will remain high."

What to Watch

Near term, traders will monitor tangible progress in U.S.–Iran negotiations, sustained normalization of tanker traffic through the Strait of Hormuz, and evidence that the estimated surplus is accumulating. Longer term, whether exporters can restore reliable flows—and how OPEC+ adjusts production—will determine whether this is a durable move toward cheaper energy or another sharp reversal within a volatile market.

Correction: An earlier version of this article misstated the date of the OPEC+ meeting. It is scheduled for November 29.