Brent crude fell roughly 4% Tuesday to close at $109.87 per barrel, and U.S. West Texas Intermediate dropped nearly as much to settle at $102.27, after Defense Secretary Pete Hegseth told reporters the American ceasefire with Iran was still intact.
The reassurance came after a volatile Monday, when oil jumped more than 4% on fears the fragile truce was collapsing. Iran had launched drones and missiles at the United Arab Emirates, and the U.S. said it sank Iranian vessels in the Strait of Hormuz. Hegseth on Tuesday said the ceasefire "certainly holds" but that Washington would be "watching very, very closely."
Gen. Dan Caine, chairman of the Joint Chiefs of Staff, told reporters that Iran's attacks fell "below the threshold of restarting major combat operations at this point." President Trump, speaking to Fox News on Monday, had warned Iran would be "blown off the face of the earth" if it targeted U.S. ships protecting commercial traffic through the strait.
The U.S. launched an operation Monday to reopen the Strait of Hormuz, one of the world's most critical chokepoints for oil shipments. Hegseth said two U.S. commercial ships, accompanied by destroyers, transited the strait. Danish shipping giant Maersk confirmed that one of its vessels, the U.S.-flagged Alliance Fairfax, made the crossing under U.S. military escort.
Iranian Foreign Minister Abbas Araghchi said on social media that recent events in the strait "make clear that there's no military solution to a political crisis," adding that the U.S. "should be wary of being dragged back into quagmire by ill-wishers." He also said nuclear talks with the United States were making progress through Pakistani mediation.
Iraq, an OPEC member, is reportedly offering steep discounts to term buyers for crude loaded this month, according to Bloomberg, though tankers will need to be willing to transit the Strait of Hormuz to take delivery.
The supply picture is tightening. Goldman Sachs wrote in a note Monday that global oil inventories are not yet at critically low levels, but that the pace of drawdowns and uneven regional distribution is creating concerns about localized shortages. The bank said accessible buffers of refined products, particularly naphtha, LPG, and jet fuel, are being depleted rapidly. Chevron CEO Mike Wirth separately warned that fuel shortages were a growing concern in some parts of the world.
Morgan Stanley said U.S. gasoline supplies are on track toward a seasonal low, according to Bloomberg, adding pressure to pump prices heading into summer driving season.
The oil rally is also rippling through other markets. Traders are watching whether surging crude prices reignite inflation expectations, which could push the Federal Reserve to raise rather than lower interest rates. The 10-year Treasury yield touched 4.45% Monday, near its year-to-date high. Options sentiment in gold has shifted bearish over the past week, with put premiums now exceeding call premiums in the SPDR Gold Shares ETF. Put volume reached $128 million in Monday's session compared to $119 million in calls, according to SpotGamma. Gold and Treasury prices typically fall when yields rise, creating a potential conflict for investors who have held both gold and energy as winning trades over the past year.
A jobs report due later this week could offer clearer signals on where the Fed stands, and whether the dual rally in gold and oil can continue without one of them giving way.
