13th June 2026
The sharp fall has surprised many people because only days ago traders were worried that conflict in the Middle East would keep oil above $100 a barrel. Instead, Brent crude has fallen to around $87 a barrel, its lowest level in nearly two months.
The main reasons are:
1. Hopes of a US-Iran agreement (the biggest factor)
The market has suddenly become much more optimistic that the fighting between the United States and Iran could be de-escalating.
If a lasting agreement is reached:
the risk of a prolonged disruption to Middle East oil exports falls;
more Iranian oil could return to world markets if sanctions are eased;
shipping through the Strait of Hormuz would become safer and cheaper.
Oil traders price future risks rather than current events, so the reduction in perceived risk has pushed prices sharply lower.
Traders are removing the "war premium"
A week or two ago, oil contained a significant geopolitical premium.
Markets were pricing in possibilities such as:
closure of the Strait of Hormuz;
attacks on major oil fields;
destruction of export terminals.
As those fears have eased, that premium has largely disappeared.
Slower world demand
Another important reason is that the global economy is not growing particularly quickly.
In particular:
China's oil demand remains weaker than expected.
Europe continues to grow slowly.
High energy prices over recent years have encouraged greater efficiency.
That means there is less upward pressure on prices than many expected.
Supply is expected to increase
Markets also expect more oil supply over the next year from countries including:
the United States;
Brazil;
Guyana;
the United Arab Emirates.
If supply rises faster than demand, prices tend to fall.
Could oil keep falling?
Yes—but there are reasons to expect volatility rather than a one-way move lower.
Case for further falls
Oil could fall towards $80 a barrel or even slightly below if:
a formal peace agreement is reached;
Iranian exports return;
the Strait of Hormuz operates normally;
the global economy remains weak.
Several forecasters now see lower average prices over the medium term because of stronger supply growth and softer demand.
Case for prices rising again
On the other hand, prices could quickly rebound if:
peace talks collapse;
fighting resumes;
shipping through the Strait of Hormuz is disrupted again;
OPEC+ cuts production to support prices.
Many analysts therefore expect continued sharp swings rather than a stable market.
What does this mean for the UK?
For the UK, lower oil prices are generally good news because they can:
reduce petrol and diesel prices after a short delay;
ease inflation;
lower business transport costs;
reduce pressure on the Bank of England to keep interest rates higher for longer.
However, if prices fall because the global economy is weakening significantly, that would also be a warning sign for economic growth.
Only a few days ago many commentators were discussing whether oil could reach $120–150 a barrel if the Strait of Hormuz were closed. Today, the market is instead asking whether Brent could drift back towards $80. That dramatic change illustrates how quickly commodity markets can reprice geopolitical risk when expectations change.