Geopolitical Expectations Reversal Leads to Severe Oil Market Volatility, Oil Prices Plunge Over 11%

March 11th, news:

On Tuesday, March 10, international crude oil futures experienced an epic plunge, with both WTI and Brent—the two benchmark oil prices—posting daily price declines exceeding 11%, marking the largest single-day price drop since March 2022. Driven by a confluence of factors—including rapidly shifting expectations regarding the Middle East conflict, signals from the U.S. indicating its intention to stabilize energy supplies, and downward revisions of price forecasts by institutions—the market plummeted straight from its four-year high reached the previous day, staging an extreme “long-short reversal.”

Oil prices post largest single-day price drop in three years; market sentiment shifts rapidly

On March 10, New York time, the settlement price for the April contract of U.S. WTI crude oil futures was reported at $83.45 per barrel, down $11.32, or 11.9%. The settlement price for the May contract of Brent crude oil futures was reported at $87.80 per barrel, down $11.16, or 11.3%. Both major crude oil benchmarks have sharply retreated from their four-year highs above $119 per barrel reached during trading on March 9.

The refined petroleum products market weakened in tandem: In May, RBOB gasoline futures fell by 5.59%, closing at $2.6093 per gallon; April heating oil futures dropped by 6.69%, ending at $3.3466 per gallon.

Key Factor: Trump Sends Signals of De-escalation, Geopolitical Premiums Rapidly Erode

The immediate trigger for this sharp plunge was U.S. President Trump’s statement on March 9 that U.S. actions against Iran would “soon come to an end,” coupled with signals from the U.S. government aimed at stabilizing energy supplies. As a result, market fears of a closure of the Strait of Hormuz and disruptions to supply quickly subsided.

Specifically, Trump made it clear that the U.S. response to Iran’s actions will be brought to a swift conclusion—though not necessarily by the end of this week, it will significantly ease market concerns about a prolonged conflict. Israel has simultaneously sent out conciliatory signals, stating that it does not seek an endless conflict with Iran and will coordinate with the U.S. to bring the pace of hostilities to a close. The market interprets this as a rapid easing of geopolitical risks in the Middle East, triggering a concentrated unwinding of the premium previously factored into oil prices for potential supply disruptions. Meanwhile, official U.S. statements regarding escort missions in the Strait of Hormuz have been inconsistent: Shortly after the U.S. Energy Secretary briefly announced plans to escort oil tankers, the statement was swiftly deleted, and the White House promptly clarified that no such escort operation was being implemented. On the Iranian side, the stance remains tough: vessels belonging to hostile powers are barred from passing through the Strait of Hormuz, creating a pattern of “verbal confrontation but de-escalation in action.”

Industry insiders point out that the current market trading logic revolves around expectations of a resumption of navigation through the Strait of Hormuz. Meanwhile, the U.S. government also has clear political considerations: to lower oil and gasoline prices, ease inflationary pressures on voters, and create a favorable environment for the midterm elections.

EIA Monthly Report: Short-term high, medium- to long-term decline; supply situation remains relatively loose.

On March 10, the U.S. Energy Information Administration (EIA) monthly report further reinforced expectations of a medium- to long-term decline in oil prices, diverging from the short-term price spikes driven by geopolitical conflicts.

The report indicates that, influenced by the conflict in Iran, Brent crude oil prices are expected to remain above $95 per barrel over the next two months before falling back to around $70 per barrel by year-end. In 2025, U.S. crude oil export volumes are projected to decline by 3% year-on-year, marking the first annual drop since 2021. The forecast for U.S. crude oil production for 2026–2027 has been slightly revised upward, reaching 13.61 million barrels per day in 2026 and 13.83 million barrels per day in 2027. The global oil production forecast for 2026 has been lowered to 107 million barrels per day, while the 2027 forecast has been raised to 109.6 million barrels per day; overall, supply remains relatively ample.

Supply Recovery Faces Delays as Policy Toolbox Gradually Opens in China

Although conflict expectations are easing, institutions generally point out that the oil supply chain will be hard pressed to recover quickly following a ceasefire. Given that oil wells have been shut down for an extended period, it could take weeks—or even longer—to resume production at full capacity, leaving short-term supply flexibility severely limited. Meanwhile, Iran continues to exert pressure, warning that if the U.S. and Israel persist in their attacks, it will not allow a single drop of oil to be exported from the region.

Under pressure, the United States has begun deploying policy tools to stabilize oil prices: Trump is considering easing sanctions on Russian oil and releasing from the Strategic Petroleum Reserve. However, G7 energy ministers have so far failed to reach an agreement on a joint release of reserves, and have instead referred the matter to the International Energy Agency (IEA) for assessment before taking any action. Further attention will be needed in the coming period to monitor policy developments.

In addition, inventory levels are providing phased support: According to data from the American Petroleum Institute (API), as of the week ending March 3, U.S. crude oil inventories fell by 1.68 million barrels, gasoline inventories declined by 1.84 million barrels, and distillate fuel inventories dropped by 2.26 million barrels. Although these declines were observed, they all came in below market expectations. Tomorrow, we’ll need to pay close attention to the official inventory data released by the Energy Information Administration (EIA).

Outlook for the Future

The current sharp drop in oil prices is the result of a combination of factors including the reversal of geopolitical risk expectations, policy stabilization interventions, and a relatively loose supply and demand situation in the medium to long term. In the short term, oil prices will still fluctuate significantly based on the progress of conflicts in the Middle East, the navigation situation in the Strait of Hormuz, and the release of reserves by the United States and the IEA. In the medium to long term, oil prices will return to being influenced by increased production in the United States, OPEC+ policies, and the global demand pace, with a high-level decline remaining the mainstream view among institutions.

According to crude oil analysts, in the short term, oil prices will fluctuate at a high level within the range of $85-95 per barrel. Apart from intense fluctuations caused by recurring geopolitical tensions, the probability of another sharp rise above $110 is relatively low. In the medium to long term, if conflicts gradually subside and shipping resumes, the geopolitical premium will continue to fade. Coupled with increased production in the United States and a more relaxed global supply, the central oil price is likely to drop to the range of $70-80 per barrel, returning to a situation dominated by the fundamentals of supply and demand.