Oil Crashes 9%: Is the Iran War Premium Vanishing?

Oil bulls just got a serious wake-up call.

Brent crude plunged nearly 9% in the previous session, sliding below $95 a barrel. WTI wasn't spared either, dropping more than 8%. And the selloff continued into Thursday.

So, what changed?

The market is starting to see a possible way out of the US-Iran conflict. After Democrats made major gains in the US midterm elections, investors are weighing whether growing political pressure could push Trump towards a quicker end to the war.

That matters for oil. The longer the conflict lasts, the greater the risk of disruption to Middle Eastern supplies. But if tensions ease and shipments recover, the huge geopolitical premium built into crude prices could start disappearing.

And there are already signs of supply returning. Oil flows through the Strait of Hormuz have moved close to pre-war levels. In other words, the market is beginning to price in less supply disruption — and that is bad news for oil bulls.

How much lower can oil go?

Brent is now approaching $92.10, an important support area. A break below it could expose $91.36 next.

On the upside, $95.91 is the first level bulls need to reclaim. Above that, $97.16 comes into view.

The next move could be just as dramatic.

If US-Iran negotiations make real progress, oil could face another wave of selling. But don't count out a sudden rebound. Any breakdown in talks or fresh military escalation could bring the geopolitical risk premium straight back.

For oil traders, the big question is no longer just how much supply is at risk. It's how quickly that risk could disappear.