Oil Rebounds to $65 After Sharp Selloff as Geopolitical Stabilization and Supply Draw Support Prices
Crude oil prices staged a modest recovery on Wednesday, with WTI crude futures rising above $65 per barrel, snapping a two-day rout that had erased nearly 13% in value—the steepest such decline since the 2022 energy market shock. While the broader commodity complex remains volatile, the rebound signals a tentative rebalancing driven by geopolitical détente, shifting US foreign policy, and surprisingly bullish inventory data.
Middle East Ceasefire: Truce Holds but Fragility Remains
At the core of recent oil market turbulence lies the ongoing conflict between Israel and Iran, and the diplomatic efforts to contain it. The US-brokered ceasefire, announced earlier this week, has so far held despite intermittent missile exchanges in peripheral zones. This truce has dramatically lowered the risk premium embedded in oil prices, reversing the speculative rally that had pushed Brent and WTI toward multi-month highs earlier in June.
In a surprising policy shift, former President Trump—positioning for a potential re-election campaign—signaled his administration would tolerate limited Chinese imports of Iranian crude as a gesture to preserve the fragile Middle East truce. China, which is Iran’s largest oil customer, imported an estimated 1.1 million barrels per day of Iranian crude in Q1 2025, largely in violation of US-led sanctions (IEA, 2025). The move risks undercutting Washington’s years-long “maximum pressure” strategy, but markets welcomed the stabilization it offers for global oil flows.
Nonetheless, tension persists. A preliminary US intelligence assessment released Tuesday suggested that recent missile strikes on three nuclear sites in Iran inflicted only partial damage, delaying—but not dismantling—Tehran’s enrichment capacity. The potential for renewed confrontation remains embedded in the geopolitical landscape, placing a soft ceiling on crude price downside.
Supply Side: Inventory Data Sparks Bullish Repricing
Beyond geopolitics, the rally in WTI crude was also fueled by a sharp drawdown in US crude inventories, signaling tightening supply conditions. According to data from the American Petroleum Institute (API) and confirmed by the US Energy Information Administration (EIA):
US crude stocks fell by 4.28 million barrels last week—massively outpacing market expectations of a 0.6 million-barrel draw.
This marks the fourth consecutive weekly decline, and the sixth in eight weeks, underscoring persistent underproduction relative to domestic demand.
The draw is attributed to both rising refinery utilization—averaging 92.7% capacity as of mid-June—and slowing US shale growth, with rig counts plateauing and output revisions pointing to modest Q3 gains. Notably, product inventories (including gasoline and distillates) also saw downward movement, suggesting broader market tightening across the petroleum complex.
Market Implications and Forward Outlook
Wednesday’s rebound to $65 per barrel reflects a market recalibrating to both geopolitical reprieve and tangible supply constraints. However, forward-looking dynamics remain complex:
OPEC+ Policy Uncertainty: The group is due to meet in early July, with speculation mounting that production quotas may be revised downward if prices fall below $60—a threshold widely seen as politically unsustainable for many member states.
US Tariff Environment: The Biden administration’s proposed tariffs on Chinese EVs and rare earths may indirectly influence oil markets by reshaping global demand for combustion vs. electric vehicles, impacting crude consumption over time.
Fed and Dollar Trajectory: With the US dollar weakening below 98 amid rate cut speculation, crude becomes more attractive in non-dollar terms, supporting short-term demand from emerging markets.
The market currently prices WTI futures in the $63–$68 range for Q3 2025, with volatility skewed to the upside given the geopolitical risks and tightening supply backdrop. Analysts at JP Morgan and Barclays now forecast an average Q3 price of $67.50 per barrel, revising earlier estimates downward due to the sharp selloff, but maintaining a bullish structural bias.
Key Takeaways:
WTI crude rebounded above $65/bbl, recovering from a 13% two-day plunge.
Ceasefire between Israel and Iran holds; US hints at tolerating China’s Iranian crude imports, easing supply concerns.
US inventory fell 4.28 million barrels, far exceeding expectations, reflecting supply tightness.
Markets anticipate OPEC+ response and Fed policy signals in July.
Price forecasts for Q3 hover in the $63–$68 band, with upside risk driven by geopolitics.
Sources:
US Energy Information Administration (2025). Weekly Petroleum Status Report, June 24.
International Energy Agency (2025). Oil Market Report, May Edition.
Reuters (2025). Crude Prices Recover as Ceasefire Holds.
Bloomberg Terminal (Accessed June 25, 2025).
American Petroleum Institute (2025). Weekly Inventory Data Summary.