Israel-Lebanon ceasefire deal pushes WTI crude toward $95

WTI crude fell more than 0.8% in early Asia Pacific trading Tuesday after the US announced Israel and Lebanon agreed to implement a ceasefire, with further talks scheduled for the week of June 22. The decline reverses part of Monday's 5.5% surge — a gain of $4.80 a barrel — that followed Iran's decision to halt ceasefire negotiations with the US, sending prices to their highest level in months.

"The conflict in the Middle East has become the dominant force shaping the global economic outlook," the OECD said in its quarterly report, cutting its 2026 global growth forecast to 2.8% if Gulf oil and gas exports return to pre-conflict levels by the third quarter, and to 2.1% if the war continues into 2027. For Germany, the OECD now expects growth of just 0.7% this year, revised down from its March forecast as rising energy costs weigh on Europe's largest economy.

WTI crude for July delivery fell as much as 0.9% to $94.87 a barrel in early Asian trading before paring some losses. The ceasefire deal also weighed on haven assets, with gold slipping 0.3%, while Asian equity futures edged higher on expectations that reduced regional tensions could lower energy costs and support economic activity. The 10-year US Treasury yield rose 2.4 basis points to 4.459% on Monday as crude's rally pushed breakeven inflation expectations higher, though the ceasefire news may reverse some of that move.

The agreement removes one layer of supply risk in a market the International Energy Agency has described as "severely undersupplied" through October. Goldman Sachs estimates that crude output in the Persian Gulf has been curtailed by about 14.5 million barrels a day, drawing down nearly 500 million barrels from global stockpiles — a figure that could reach 1 billion barrels by June. If the June 22 talks fail to produce a lasting truce, oil prices could rebound sharply as the underlying supply deficit remains unresolved.

The ceasefire comes after weeks of escalating violence that drew in multiple regional players. Iran's Islamic Revolutionary Guard Corps claimed responsibility for a drone attack on Kuwait International Airport that killed one person and injured at least 63 others, according to Kuwait's Health Ministry. The US military responded with strikes on Iran's Qeshm Island in the Strait of Hormuz, while maintaining a maritime blockade that has stopped seven vessels attempting to reach Iranian ports, including a Botswana-flagged tanker disabled by a Hellfire missile strike on its engine room.

The supply backdrop remains exceptionally tight even before accounting for geopolitical disruptions. OPEC's April crude production fell by 420,000 barrels a day to a 35-year low of 20.55 million barrels a day, according to Bloomberg data. The cartel had planned to restore about two-thirds of the 1.65 million barrels a day it cut in 2023 through a series of monthly quota increases, but the ongoing conflict has forced many Middle East producers to cut output rather than raise it. Russia's refinery runs in May dropped 13% year over year to 4.58 million barrels a day, the lowest since October 2009, after Ukrainian drone strikes on Russian refineries reached a record high. Russia subsequently banned jet fuel exports to preserve domestic supply.

The IEA reported that global oil inventories declined at about 4 million barrels a day in March and April, and the agency expects the market to remain severely undersupplied until at least October even if the conflict ends soon. The OECD warned that a prolonged war could push global growth to just 1.8% in 2027, with Germany particularly exposed to rising energy costs. The last time oil supply disruptions of this magnitude occurred was during the 2019 attacks on Saudi Aramco's Abqaiq facility, which temporarily knocked out 5.7 million barrels a day of production — roughly 40% of the current Persian Gulf disruption.

For now, traders are watching the June 22 talks as the next inflection point. A successful ceasefire could accelerate the decline in crude prices by removing the risk premium that has added an estimated $10 to $15 a barrel since the conflict escalated in late February. A failure, however, would leave the market facing the same supply constraints with one fewer diplomatic off-ramp, potentially sending prices back above $100 as the summer driving season boosts demand.

This article is for informational purposes only and does not constitute investment advice.